OGJ Newsletter

Nov. 27, 2017
International news for oil and gas professionals


Norway urged to divest oil company stocks

The Norwegian government has been advised to shed equity holdings in oil and gas companies from its sovereign wealth fund, the world's largest.

In a letter to the Ministry of Finance, officials of Norges Bank cited the amplified vulnerability of the government's wealth to oil-price risk.

Norges Bank Investment Management oversees the foreign-currency portfolio of the Government Pension Fund Global (GPFG), worth about $1 trillion, for the ministry.

About 4% of the GPFG's holdings are oil and gas stocks, the values of which tend to follow oil prices.

The government's sensitivity to oil prices also comes from its oil and gas revenue and its 67% interest in Statoil. Values of the Statoil stake and the GPFG's holdings of oil and gas stocks are about equal.

The letter noted that the present value of the government's future oil and gas revenue recently was estimated at $480 billion, subject to uncertainties of production rates and costs and of oil prices.

It estimated that a permanent drop in oil prices of $12/bbl would cut that value by more than half while also devaluing oil-company stocks and Statoil.

"We conclude that the vulnerability of government wealth to a permanent drop in oil and gas prices will be reduced if the fund is not invested in oil and gas stocks and advise removing these stocks from the fund's benchmark index," Norges Bank officials said. "This advice is based exclusively on financial arguments. It does not reflect any particular view of future movements in oil prices or the profitability or sustainability of the oil and gas sector."

US House approves tax reform bill by 22-vote margin

The US House of Representatives approved tax reform legislation Nov. 16 in a 227-205 vote as 11 Republicans joined Democrats in opposing the bill.

"We've got a long road ahead of us, and we have a timeline to get this done by the end of the year," Speaker Paul D. Ryan (R-Wis.) said after the vote.

H.R. 1 included provisions that would reduce the federal corporate tax rate to a flat 20% from 35% (25% for personal services corporations), limit deductibility of net interest expenses to 30% of a business's adjustable taxable income, modify or repeal various energy-related deductions, and modify taxation of foreign income.

The bill's energy-related provisions would repeal the enhanced oil recovery (EOR) credit and the credit for oil and gas produced from marginal wells. Darlene Wallace, chairman of the National Stripper Well Association (NSWA) and president of Columbus Oil Co. in Seminole, Okla., told OGJ on Nov. 17 that she was not surprised.

"When the Senate and House tax committees began looking for ways to cut alternative energy subsidies and provisions for wind, solar, and biofuels, they knew they would have to make some concession with oil and gas," she said.

When Wallace, NSWA lobbyist Aindrui Colgan, and several others met with committee members in September, they learned that percentage depletion also might be a target in addition to the EOR and marginal well production credits, Wallace said.

"We discussed all three provisions with them and got commitments from most of the members we met that percentage depletion would be preserved. When the House voted on its tax-reform bill, repeals of the other two credits were included, but the current percentage depletion rate was kept intact, which is a win for all of us," she said.

API, CAPP, AMEXHI reiterate support for NAFTA

The American Petroleum Institute, Canadian Association of Petroleum Producers, and Mexican Association of Hydrocarbon Companies (AMEXHI) jointly reiterated their support for the North American Free Trade Agreement as its renegotiation resumed in Mexico City on Nov. 15. Their latest joint position paper also repeated the need to maintain robust investor protections to keep North American energy integration strong.

"If it is not possible for the US, Canada, and Mexico to agree on an updated NAFTA, we urge policymakers to retain the current NAFTA and all of its considerable mutual energy benefits that would be diminished greatly without a trilateral NAFTA," said the three groups, which collectively represent more than 750 oil and gas companies.

They added that they oppose proposals, such as a sunset clause or an Investor-State Dispute Settlement opt in-opt out mechanism, which the three associations said would weaken stability and protections for long-term investments.

"On energy, the US, Mexico, and Canada are better off with NAFTA because [it] benefits energy workers, energy consumers, and energy companies alike. NAFTA also facilitates regional energy security and represents increased revenues to all three governments, the associations said.

Anadarko reports 2018 capital guidance

Anadarko Petroleum Corp., The Woodlands, Tex., reported its 2018 capital expectations and guidance. In 2018, the company expects to make capital investments of $4.2-4.6 billion.

Anadarko expects to spend about $2.1 billion in US onshore, upstream operations. Moreover, the company plans to invest $1.1 billion in deepwater Gulf of Mexico operations, $550 million in midstream, $350 million in exploration and LNG, and $150 million in international operations.

"Our 2018 investment plan will again be driven by capital efficiency and financial discipline," said Anadarko Chairman, Pres., and Chief Executive Officer Al Walker. "These key tenets have served us well for the last decade, as growth within cash flow is fundamental to delivering capital-efficient returns. Our repositioned asset footprint is built to succeed in a market where oil prices exhibit volatility in a $45-60/bbl environment, with gas averaging $3/Mcf. We expect next year's capital expenditures to be inside of discretionary cash flow at $50[/bbl] and $3[/Mcf], while generating free cash flow of more than $700 million at the current strip. Further, we plan to return substantial cash to shareholders by executing the remaining $1.5 billion of our $2.5 billion share-repurchase program during the coming year."

Exploration & Development Quick Takes

PentaNova, YPF eye Llancanelo development

PentaNova Energy Corp., Vancouver, BC, has agreed to make acquisitions that will increase its working interest to 50% in Llancanelo heavy-oil field in Argentina and allow work to begin on a joint development plan with YPF SA, Buenos Aires.

The agreements include a farmin for 11% from YPF, the operator.

PentaNova holds a 29% working interest through Alianza Petrolera, a wholly owned subsidiary, and is completing another acquisition for an additional 10%.

The farm-in terms with YPF include an initial period of up to 6 months during which the partners are to complete planning and evaluation for full field development.

Llancanelo, in the northern Nequen basin 37 km southeast of Melargue, produced an average of 1,277 boe/d during September from conventional, cold-flow horizontal wells. The oil is 12° gravity. YPF discovered the field in 1937 and drilled 13 deviated wells into a large heavy-oil deposit in 2016.

PentaNova said the partners plan to move a coil-tubing unit to the field next year for workovers and testing.

Consol to be split into coal, gas firms

Consol Energy Inc., Pittsburgh, will be split into a coal company and a natural gas exploration and production company focused on the Marcellus and Utica shale plays of the Appalachian basin.

The company's directors have approved pro rata distribution of all outstanding shares of Consol Mining Corp. to the shareholders, after which the coal unit will be an independent, publicly traded company in which Consol will have no ownership.

The current parent's name will change to CNX Resources Corp. Consol Mining will be renamed Consol Energy Inc.

The company said its third-quarter production from the Marcellus shale increased 17% from the same quarter a year earlier to 60.4 bcfe. Its Utica shale production fell 11% from a year earlier during the quarter to 20.1 bcfe.

Drilling & Production Quick Takes

Rosneft finishes 15,000-m horizontal Sakhalin well

Rosneft, a member of the Sakhalin-1 consortium, reported the completion of a 15,000-m horizontal well from Orlan platform in Chaivo field in the Sea of Okhotsk. It's the world's longest well, Rosneft said.

"This is a super-complex well," Rosneft said. "A number of world records have been set in extended-reach drilling since the start of drilling at Sakhalin-1 project in 2003."

The Sakhalin-1 consortium has drilled 9 out of 10 of the world's longest wells, Rosneft said.

Sakhalin-1's extended-reach drilling combines models of drilling parameters with structured well design. Extended reach drilling reduces construction costs for additional offshore structures, pipelines and other infrastructure.

It also mitigates environmental impact due to smaller drilling and production footprint.

Chaivo is one of three fields in the Sakhalin-1 project. The Orlan platform is in about 15 m of water.

Funding complete for two Nigerian fields

Nigerian National Petroleum Corp. says execution of the final phase of an alternative financing agreement with Chevron Corp. will boost production in Nigeria by 39,000 b/d of oil and 283 MMscfd of natural gas.

The companies reached an agreement earlier this year for third-party finance totaling $780 million to complete the $1.7-billion development of Sonam and Okan gas and condensate fields in the Niger Delta. The funding includes $380 million to cover NNPC's cash-call obligations to the NNPC-Chevron Nigeria Ltd. joint venture (OGJ Online, Aug. 4, 2017).

Nigerian commercial banks agreed to fund $400 million in a first stage of funding closed in August. International commercial banks will provide $380 million in the newly closed second stage.

Egina FPSO heading to Nigeria

Samsung Heavy Industries Co. Ltd. said the Egina floating production, storage, and offloading vessel has left the Geoje shipyard in South Korea on its way to Nigeria. Travel time to Nigeria is expected to be 3 months.

The $3-billion FPSO has 2.3 million bbl of storage capacity. It is 330 m long, 61 m wide, and 34 m high.

A portion of the topsides fabrication and integration is to be completed in Nigeria. Delivery to Egina field, which lies 200 km offshore Nigeria, is scheduled for second-half 2018 (OGJ Online, June 21, 2013).

Samsung was awarded the build order for the Egina FPSO in 2013. It formed a joint venture with a Nigerian company and established a production facility in Lagos to meet local content requirements. The joint venture, SHI-MCI, has constructed topside modules for Egina since June 2015.

Premier says Catcher to come on stream by yearend

Premier Oil PLC expects to lower its $2.8-billion debt after Catcher oil field in the North Sea comes on stream in December, executives recently said. Premier reported third-quarter earnings included $2.8 billion of debt, but analysts say the London independent oil company could reduce debt to $2.6 billion by Dec. 31.

"As long as we're outperforming operationally, I'm happy, everybody's happy, the banks are happy," Premier Chief Executive Tony Durrant told Reuters.

RBC Europe Ltd. analysts noted the full hook-up process is complete for Catcher. Development drilling continues ahead of schedule with 12 wells of which 8 are production wells and 4 are injection wells.

Those dozen wells are drilled and tied back to a floating production, storage, and offloading vessel.

Premier executives say higher production will make the firm cash-flow positive in the fourth quarter and for all of 2017. Crude oil prices are offsetting Catcher's expenses. Premier cut development, exploration, and abandonment expenditures for 2017 to $300-310 million from its initial $390-million target.

Full-year production guidance remained at 75,000-80,000 boe/d.

Statoil lets EPCI contract for Troll C gas module

Statoil ASA has let an engineering, procurement, construction, and installation contract to Aibel AS for a gas module for the Troll C platform in an effort to increase oil production and gas exports from Fram field in the North Sea.

Aibel in Bergen, Norway, will be responsible for engineering, and the module will be fabricated at Aibel's Haugesund yard. Work is under way on the project, which is expected to start up at yearend 2019.

Statoil is further developing Troll C as a hub for the Troll C and Fram area. Gunnar Nakken, Statoil senior vice-president for operations West, explained the module will enable the company "to mature more wells and explore for new resources in the Fram area, which altogether will make it possible to extend the economic life time for the field."

Fram field, which came on stream in 2003, lies in 350 m of water in the northern portion of the North Sea, some 20 km north of Troll. The field includes several reservoirs and is developed with Fram West and Fram East, each with two four-slot templates. Both are developed by two subsea templates tied back to Troll C.

Statoil Petroleum AS operates Fram with 45% interest. Partners are ExxonMobil Exploration and Production Norway AS 25%, Engie E&P Norge AS 15%, and Idemitsu Petroleum Norge AS 15%.

Chaparral exits EOR to focus on STACK

Chaparral Energy Inc., Oklahoma City, has sold its enhanced oil recovery properties in Oklahoma and Texas to Perdure Petroleum, which Delaware records indicate was formed Sept. 26 as a limited liability company.

The properties produce 5,700 boe/d with injection of carbon dioxide.

The purchase price was $170 million.

Chaparral is concentrating on the STACK play of Oklahoma, where it has 3,500 drilling locations on 110,000 net acres in Kingfisher, Garfield, and Canadian counties.

It once was the third most-active CO2-EOR producer in the US. PROCESSING Quick Takes

Aramco to shutter, convert Jiddah refinery

Saudi Aramco has discontinued crude processing operations at its 77,000-b/d Jiddah refinery along the Red Sea coast to convert the industrial complex into a distribution center for petroleum products (OGJ Online, May 5, 2015).

The decision to shutter the 50-year old refinery-which accounted for about 2.7% of the kingdom's total refining capacity-comes as part of the company's broader strategic objectives of maintaining product supplies for distribution in the region while continuing to improve economic and environmental performance of its operations, Aramco said.

Alongside aging equipment at the complex that was nearing the end of its lifespan, the refinery's shutdown also resulted from the plant's nearby locale to residential areas, which prevented Aramco from expanding operations at the manufacturing site, said Abdulaziz M. Al-Judaimi, the company's vice-president of downstream operations.

Aramco joint ventures Yanbu Aramco Sinopec Refining Co. Ltd.'s recently commissioned 400,000-b/d refinery in Yanbu Industrial City and Saudi Aramco Total Refinery & Petrochemicals Co.'s 400,000-b/d refinery at Jubail will help meet domestic demand to replace that served by the Jiddah refinery until the anticipated startup of Aramco's wholly owned 400,000-b/d refinery now under construction at Jazan Economic City, which is scheduled for commissioning in mid-2018.

While Aramco did not disclose a specific timeline for startup of Jiddah's products-distribution center, Al-Judaimi said the company has developed an integrated program for the process of safely converting the complex, including a plan to redistribute the refinery's usable processing equipment to other manufacturing centers within the company's downstream system.

Dangote lets contract for Lekki integrated complex

Nigerian conglomerate Dangote Industries Ltd. (DIL) has let a contract to Aspen Technology Inc., Bedford, Mass., to provide software aimed at economic and operational planning for subsidiary Dangote Oil Refining Co.'s (DORC) 650,000-b/d grassroots integrated refining complex now under construction in southwestern Nigeria's Lekki Free Trade Zone (OGJ Online, Nov. 25, 2013).

Aspen Technology will deliver its proprietary Aspen PIMS-AO software to streamline feedstock selection, product-slate optimization, and production planning at the refinery, the supplier said.

Alongside DORC's previous use of the software to help select configuration, critical design, and expansion studies for the refinery, the operator will use Aspen PIMS-AO to report refining economics as well as to determine ongoing product-slate and feedstock selection for the plant following its scheduled startup in 2019, said Srinivas Rachakonda, DIL's director of business strategy and optimization.

A value of the current contract was not disclosed.

To become the world's largest single-train refinery upon commissioning, DORC's $12-billion Lekki integrated complex will include a 650,000-b/d crude distillation unit, a 3.6 million-tonne/year polypropylene plant, a 3 million-tpy urea plant, and gas processing installations to accommodate 3 bcfd of natural gas that will be transported through 1,100 km of subsea pipeline to be built by DIL (OGJ Online, Sept. 8, 2017; June 23, 2017; Apr. 27, 2017).

The complex will be equipped to produce 33 million tpy of petroleum products, including gasoline, diesel, kerosine, aviation fuel, and other petrochemicals.


Ineos to supply long-term US ethane to China

Ineos has reached a long-term agreement to supply US-produced ethane to SP Chemicals' newbuild 650,000-tonne/year cracker in Taixing, Jiangsu Province, China. Ineos has been shipping ethane from the US to Europe since 2015.

The agreement includes construction of a 95,000-cu m very large ethane carrier (VLEC) to be delivered in 2019. The ship, which Ineos describes as the largest VLEC yet built, will be operated by Evergas. It will be the first VLEC in Evergas's fleet of 23 gas carriers.

The Jaccar Group will manage construction of the vessel at China's Dalian Shipbuilding Industry Offshore. The VLEC will use four cargo tanks, including three Type-C Trilobe VLEC tanks developed by JHW Engineering & Contracting.

Tellurian lets EPC contract for Driftwood LNG

Tellurian Inc. and Bechtel Oil, Gas & Chemicals Inc. signed four fixed-price, lump-sum turnkey agreements totaling $15.2 billion for the engineering, procurement, and construction of Driftwood LNG, an LNG export plant proposed in Carlyss, La., on the west bank of the Calcasieu River. Driftwood LNG includes: twenty 1.38 million-tonne/year liquefaction trains using Chart Industries' integrated precooled single mixed refrigerant process and GE refrigeration compressors; three 235,000-cu m full containment LNG storage tanks; and three marine loading berths.

Bechtel will build Driftwood LNG in four phases, beginning operations on a staggered basis: Phase 1: Up to 11 million tpy from 8 trains, Storage Tanks 1 and 2, Loading Berth 1, and related utilities; Phase 2: Up to 5.5 million tpy from 4 trains, Loading Berth 2, and related utilities; Phase 3: Up to 5.5 million tpy from 4 trains, Storage Tank 3, Loading Berth 3, and related utilities; Phase 4: Up to 5.5 million tpy from 4 trains. and related utilities.

Driftwood described the $550/tonne EPC cost as one of the lowest worldwide. The company expects Phase 1 to enter service in 2022, with all phases operational by 2025.

Driftwood Pipeline LLC is investigating development of a pipeline to supply the plant. The proposed 96-mile line would carry 4 bcfd of natural gas, using 74 miles of 48-in. OD pipe, 11 miles of 42-in. OD, and 11 miles of 36-in. OD. The pipeline would also include 3.5 miles of 30-in. OD lateral, 3 compressor stations (CS 01 Gillis in Calcasieu Parish, CS 02 Basille in Acadia Parish, and CS 03 Mamou in Evangeline Parish), and 13 interconnects.

Appeals Court denies LNG export approvals

The US Appeals Court for the District of Columbia denied three Sierra Club petitions for reviews of US Department of Energy approvals for LNG exports from terminals at Cove Point, Md.; Sabine Pass, La.; and Corpus Christi, Tex. The Nov. 1 denials rejected the environmental organization's contention that local impacts from the exports should have been considered.

The Center for Liquefied Natural Gas welcomed the court's action. "We hope today's decision will put an end to the unnecessary and costly challenges by Sierra Club that delay LNG projects," CLNG Executive Director Charlie Riedl said. "The facts are clear and the court agrees: The regulatory review process for US LNG projects provides a thorough review of both operational and environmental impacts before being approved."

LNG Allies Executive Director Fred H. Hutchison also noted that the court, once again, found no merit in the Sierra Club's challenges. He expressed hope that it and similar groups now would work with LNG export proponents "to bring the environmental benefits of US natural gas to places that still rely primarily upon dung, wood, coal, and fuel oil for heating, cooking, and the production of electricity."