OGJ Newsletter

Aug. 7, 2017
International news for oil and gas professionals

GENERAL INTEREST Quick Takes

German official slaps US sanctions bill

Concern about the planned Nord Stream 2 natural gas pipeline elicited new German opposition to expanded US sanctions against Russia.

Prior to US President Donald J. Trump signing the bill on Aug. 2, Brigitte Zypries, Germany's economic minister, called for European Union resistance to the move in an interview with the Funke Mediengruppe newspaper network reported by Radio Free Europe/Radio Liberty.

She said sanctions against European companies supporting Nord Stream 2 would damage the economies and energy security of European countries and violate international law.

The twin pipeline is to carry Russian gas 745 miles across the Baltic to Germany and other European destinations. It has raised concerns in Europe, the US, and elsewhere about increased European reliance on gas from Russia.

Five European companies have agreed to finance half the project, the sole shareholder of which is Russia's Gazprom PJSC.

"The Americans can't punish German companies because they have business interests in another country," Zypries said.

Her comments echoed an earlier warning by German Foreign Minister Sigmar Gabriel that Germany won't tolerate US moves against European countries involved in Nord Stream 2.

European Commission Pres. Jean-Claude Juncker has promised prompt European retaliation against sanctions targeting European companies.

Shell's second-quarter earnings spike 245%

Royal Dutch Shell PLC reported second-quarter earnings on a current cost of supplies basis, excluding identified items, of $3.6 billion, up from $1.05 billion in second-quarter 2016.

For the first half, the supermajor recorded earnings of $7.36 billion, up from $2.6 billion in first-half 2016.

"Shell's strong results this quarter show that we are reshaping the company following the integration of BG," commented Ben van Beurden, Shell chief executive officer. "The external price environment and energy sector developments mean we will remain very disciplined, with an absolute focus on the four levers within our control, namely capital efficiency, costs, new project delivery, and divestments."

Second-quarter results were bolstered by Shell's downstream business, which posted earnings of $2.53 billion, up from $1.82 billion in second-quarter 2016. Compared with second-quarter 2016, downstream earnings excluding identified items benefited from stronger chemicals and refining industry conditions, improved operational performance, and lower operating expenses.

The firm's integrated gas segment also recorded an increase, rising to $1.17 billion from $868 million a year earlier. Compared with second-quarter 2016, integrated gas earnings excluding identified items benefited from higher realized oil, gas, and LNG prices, higher LNG volumes, and lower operating expenses. This more than offset the impact of lower liquids production volumes and lower contributions from trading.

Shell's upstream business posted second-quarter earnings of $339 million compared with a loss of $1.33 billion a year earlier. Compared with second-quarter 2016, upstream earnings excluding identified items benefited from higher realized oil and gas prices, lower depreciation including the impact of assets held for sale and divestments, and increased production volumes mainly from assets ramping up.

Total's second-quarter income rises 14%

Total SA recorded a first-quarter adjusted net income of $2.5 billion, up from $2.2 billion in first-quarter 2016.

The French supermajor's first-half adjusted net income was $5.03 billion, up from $3.81 billion in first-half 2016.

Given Total's stronger balance sheet, Patrick Pouyanne, chairman and chief executive officer, said the firm "has the flexibility to take advantage of the low-cost environment by being able to launch profitable projects and acquire resources under attractive conditions."

Second-quarter adjusted net operating income from the firm's upstream business was $1.36 billion, up from $1.04 billion in second-quarter 2016, notably due to production growth, cost reduction, and the increase in oil and gas prices, the firm said.

Total expects annual production growth to be more than 4% in 2017, supported by the startup in mid-July of operations at Al-Shaheen field in Qatar and the continued ramp-up of new projects, notably Kashagan in Kazahkstan and Moho Nord in Congo. Startups of new projects will continue in the second half, mainly with Libra Pioneiro in Brazil and Edradour-Glenlivet in the UK.

Second-quarter adjusted net operating income for the firm's downstream business was $861 million, down from $1.02 billion in second-quarter 2016, notably due to significant maintenance activities at major platforms, it said.

Total believes refining margins, supported by cracks for fuel oil and gasoline, and petrochemical margins remain favorable at the start of the third quarter. Availability of the integrated Antwerp platform will be affected by the finalization of the upgrade program, which should be completed by the end of the third quarter. In addition, maintenance activities are planned at Port Arthur in the US.

ConocoPhillips trims 2017 spending by $200 million

ConocoPhillips is reducing its planned capital expenditures for 2017 by $200 million to $4.8 billion.

The Houston firm is the latest US independent to roll back spending amid prolonged oil price volatility. Anadarko Petroleum Corp. also said it's cutting its capital investment for the year by $300 million.

"We remain focused on lowering our breakeven price for the business, generating free cash flow and delivering strong per-share growth with improving returns through the price cycles," said Ryan Lance, ConocoPhillips's chairman and chief executive officer. "This is the right approach for value creation in the upstream sector, especially at a time of uncertainty in the commodity markets."

ConocoPhillips expects its third-quarter production to reach 1.17-1.21 million boe/d, which excludes Libya and reflects expected impacts from the firm's San Juan, Barnett, and Panhandle asset sales. The firm's full-year production on the same basis is expected at 1.34-1.37 million boe/d.

The firm reported a second-quarter loss of $3.4 billion, compared with a second-quarter 2016 loss of $1.1 billion. Excluding special items, second-quarter 2017 adjusted earnings were $200 million, compared with a second-quarter 2016 adjusted loss of $1 billion.

For the first half, ConocoPhillips took a loss of $2.9 billion, compared with a first-half 2016 loss of $2.5 billion. First-half 2017 adjusted earnings were $1 million, compared with a first-half 2016 adjusted loss of $2.2 billion.

Exploration & DevelopmentQuick Takes

Petronas, Ecopetrol get Mexico's shallow-water Block 6

Malaysia's Petronas said shallow-water Block 6 in the Gulf of Mexico's Salina basin has been awarded to a 50-50 partnership with Colombia's Ecopetrol.

The block covers about 559 sq km in 30-80 m of water. The operator is PC Carigali Mexico Operations, a Petronas subsidiary.

Block 6 did not receive bids in Mexico's oil and gas bid round last December.

PC Carigali Mexico Operations is a participant in Block 4 and Block 5.

ONGC reports five discoveries in second quarter

India's Oil & Natural Gas Corp. Ltd. reported five discoveries during the first quarter of its fiscal year. Three were offshore.

In the Mumbai basin, SW-WO-24 is classified as a new prospect discovery. Three zones were tested and flowed gas and condensate after drilling to 2,360 m.

In the KG basin, two zones in the Godavari Clay formation were tested and flowed gas after the GD-10-1(AA) was drilled to 2,829 m. It too is a new prospect discovery.

Also in the KG basin, the GS-29 No. 11 is classified as a new pool discovery after being drilled to 2,718 m and flowing oil and gas from Godavari Clay.

Onshore, the West Matar-1 in the Cambay basin is classified as a new prospect discovery after being drilled to 2,256 m and flowing oil and gas from the Hazad formation.

The KU-8(KUAF) in A&AA basin is a new pool discovery after being drilled to 3,460 m and flowing gas from the Middle Bhuban formation.

Beach plans expanded Cooper basin program for 2017-18

Beach Energy Ltd., Adelaide, has outlined an expanded exploration and production program in its Cooper basin acreage for the 2017-18 financial year in which it expects to spend $220-260 million (Aus.). The company previously had forecast a figure of $155 million (Aus.).

Beach Energy has targeted a production figure of 10-10.6 million boe for the next 12 months along with an ongoing goal of at least 10 million boe for each of 2019 and 2020.

Beach Energy is confident of 100% replacement of produced reserves, and hopefully more, through to the end of June 2019.

The planned work program for the next year includes the completion and connection of more than 20 currently cased and suspended wells, production optimization projects, facility expansions and development drilling. The aim is the offsetting of natural decline and to sustain production levels for the coming 12 months.

On the drilling front, the company plans a 37% increase in its program compared with last year with a total of 78 wells set for 2017-18. As many as 44 of those wells will be exploration or appraisal.

Beach Energy also plans to process and interpret recently acquired 3D seismic data to identify targets for 2019 and beyond.

The program will primarily focus on the core Western Flank oil and gas play fairways as well as the Cooper basin joint venture work operated by fellow Adelaide firm Santos Ltd.

About $160-200 million of the expected $220-260 million expenditure will be on discretionary programs with 35% allocated to Western Flank oil, 35% to Western flank gas, and 25% to the Cooper basin JV.

The remaining $60 million will be fixed expenditure needed for asset maintenance, permit fees, and tenement commitments.

Drilling & ProductionQuick Takes

EQT halts Utica test to focus on Marcellus

EQT Corp., Pittsburgh, has suspended a test program in the Utica shale to concentrate on drilling in the Marcellus shale boosted by its planned acquisition of Rice Energy Inc., Canonsburg, Pa.

EQT last December said it planned to drill seven deep Utica exploratory wells with an average lateral length of 6,800 ft on its 490,000-net-acre leasehold.

In a statement with its second-quarter 2017 earnings report, it said the Rice acquisition changes the plan.

"In anticipation of the merger with Rice Energy, EQT has suspended its Utica test program as improved returns on Marcellus wells resulting from longer laterals made possible by the Rice acquisition are higher than the return expected on the average Utica well today," it said.

EQT lowered its 2017 production outlook by 10-15 bcfe to reflect the suspension.

It said it spudded 66 gross wells during this year's second quarter, including 43 Marcellus wells, with an average expected length of pay of 8,200 ft, and 23 Upper Devonian wells, with an average expected length of pay of 8,300 ft.

EQT's core Marcellus development area is in southwestern Pennsylvania, eastern Ohio, and northern West Virginia. The core Upper Devonian acreage lies within the Pennsylvanian part of that area.

The company reported second-quarter net income of $41.1 million, compared to a loss of $258.6 million in the comparable period of 2016.

BD gas-condensate field off Indonesia starts flow

China National Offshore Oil Corp. Ltd. (CNOOC) said production has begun from BD gas-condensate field in Indonesia's Madura Strait.

The field has two wells in production with 7,200 boe/d in gas and condensate sales production.

Design peak production is expected to be 25,500 boe/d in 2018.

Main production facilities include an unmanned wellhead platform, four production wells, and a floating production, storage, and offloading vessel in 55 m of water.

Husky-CNOOC Madura Ltd. is operator. CNOOC and Husky Energy Inc. each have 40%, and Samudra Energy holds 20%.

Byrding oil, gas field on stream in North Sea

Statoil ASA reported that Byrding oil and gas field is on stream in the North Sea.

North of Troll field, Byrding's recoverable volumes are estimated at 11 million boe. Byrding includes a two-branch multilateral well drilled from the Fram H-Nord subsea template. It is about 7 km long and split into two branches after a few km, Statoil said.

Oil and gas flow to Troll C for processing. Oil is routed to Mongstad and gas to Kollsnes via Troll A.

"Good utilization of existing infrastructure has resulted in a cost-effective development that will add profitable resources to the Troll field," said Gunnar Nakken, senior vice-president for Statoil.

Partners have invested about 1 billion kroner in Byrding.

Operator Statoil has 70% interest, Engie E&P Norge AS 15%, and Idemitsu Petroleum Norge AS 15%.

PROCESSINGQuick Takes

Shell warns of extended shutdown for Rotterdam refinery

Royal Dutch Shell PLC subsidiary Shell Nederland Raffinaderij BV's 404,000-b/d Pernis refinery and integrated petrochemical production site in Rotterdam, the Netherlands, will remain shut down for at least 2 weeks for repair work following a July 29 power outage that caused an explosion and fire at the site.

Shell does not expect to restart the Pernis refinery-Europe's largest-until sometime during second-half August at the earliest so that damage to the complex's fire-impacted power station can be fully repaired, the company said on Aug. 1.

While Shell has completed the safe and controlled shutdown of most operating units at the refinery, the operator confirmed a release of hydrogen fluoride occurred on the evening of July 31 during rinse work at one of the already shuttered units.

The source of the hydrogen fluoride leak has been identified and stopped, and no hazardous concentrations have been measured outside the site's boundaries, according to Shell.

Both the July 29 fire and July 31 hydrogen fluoride release are under investigation, and Shell continues to work with Rijnmondveilig.nl, the official emergency alert service for the Rotterdam-Rijnmond area, and DCMR Milieudienst Rijnmond-South Holland province's joint environmental protection agency-to restore operations at the refinery as soon and as safely as possible, the operator added.

In acknowledging the refinery's temporary closure will have a potential impact on regional supplies, Shell said it is working to minimize those consequences for customers.

Hellenic advances turnaround at Elefsina refinery

Hellenic Petroleum SA has decided to bring forward major planned maintenance at its 100,000-b/d Elefsina refinery in Elefsis, Greece, following an unexpected shutdown of the plant's hydrogen production unit in early July.

Planned maintenance works at all of the refinery's units originally scheduled to take place from late-September 2017 through March 2018 will now be carried out during the current shutdown period, Hellenic said.

Under the revised turnaround plan, the company plans to complete maintenance activities and resume full operations at Elefsina sometime in September.

During the maintenance period, Hellenic's 148,000-b/d refinery in Aspropyrgos and 93,000-b/d refinery at Thessaloniki will cover supply needs of Greece's domestic market as well as the company's own international subsidiaries, according to the operator.

While Hellinic confirmed an unidentified technical incident forced the July 10 closure of Elefsina's hydrogen production unit, the company has yet to reveal further details surrounding the event.

Oasis to expand Wild basin plants

The North Dakota Public Service Commission (NDPSC) has approved Oasis Midstream Services LLC, a subsidiary of Oasis Petroleum Inc., Houston, to expand capacities of its Wild basin natural gas processing and crude stabilization plants in McKenzie County, ND, about 6 miles northeast of Watford City.

Approved for a siting permit on July 26, the expansion project will increase Oasis's Wild basin overall gas processing capacity to 345 MMcfd from 80 MMcfd, crude stabilization capacity to 80,000 b/d from 60,000 b/d, and working-capacity crude storage to 350,000 bbl from 200,000 bbl, according to documents from NDPSC.

For the gas-processing leg of the expansion, Oasis will build a new 200-MMcfd processing train adjacent to its existing plant, as well as add 65 MMcfd in modular mechanical refrigeration units to enable the company's ongoing production activities in Wild basin field while the new train is under construction.

The crude stabilization and storage expansions will entail the addition of a fourth stabilizer and new storage tank at the site, respectively.

With construction activities scheduled to begin at the gas plant immediately and the crude-handling installations in second-quarter 2018, Oasis expects to fully commission the expansions by November 2018, the company said in its May 2017 permit application for the $150-million project to NDPSC.

Alongside accommodating Oasis's recently increased estimates of 200-300 MMcfd for its own Bakken gas reserves in Wild basin, the expansion project also will provide processing and handling capacities for any third-party operators in the region wishing to tie into the company's growing gathering system, Oasis said.

Earlier in the year, Oasis announced it would increase capex plans for 2017 by more than $200 million from 2016 to about $605 million, excluding acquisitions.

TRANSPORTATIONQuick Takes

Wheatstone LNG to come on stream in August

Chevron Australia reports that the first production train of its $34-billion Wheatstone LNG project in Western Australia is now in the final stages of commissioning. Production should begin in the next few weeks.

The project was originally slated for an end-2016 on-stream date, later amended to mid-2017 and then again to August 2017. Cost overrun, $5 billion, is modest compared with the $17-billion overrun recorded for the company's larger Gorgon-Jansz project.

Head of the company's upstream division, Jay Johnson, said in a quarterly briefing in the US that the Wheatstone offshore platform and pipeline to shore were up and running and initial performance of the production wells has been encouraging.

The 8.9 million-tonnes/year project's second train is on track to be brought on stream early next year, 6-8 months after the first train, Johnson added. Construction will wind down in the December 2017 quarter prior to the start of plant commissioning.

Johnson said that the startup of the third train at Gorgon in March had gone smoothly and all three trains at the project are "stable at or above nameplate." Chevron is now focusing on opportunities to increase reliability.

The 15.6 million-tpy Gorgon-Jansz development produced 333,000 boe/d on average in the June quarter and the project is currently well above that, averaging 430,000 boe/d.

There have been 88 LNG cargos shipped from the project so far this year.

ETP to sell 32.44% Rover Pipeline stake to Blackstone

Energy Transfer Partners LP's wholly owned subsidiaries, Energy Transfer Interstate Holdings LLC and ET Rover Pipeline LLC have signed an agreement with funds managed by Blackstone Energy Partners and Blackstone Capital Partners for sale of ETP's 32.44% stake in the Rover Pipeline project to Blackstone. Blackstone will pay $1.57 billion in cash for a 49.9% interest in ET Rover Pipeline, which owns 65% of the natural gas pipeline project.

ET Rover Pipeline and Rover Pipeline LLC are building the 700-mile, 3.25-bcfd pipeline and will operate it once in service. Rover will move gas from the Marcellus and Utica shale production areas to markets across the US and to Union Gas Dawn Hub in Ontario, Canada, for redistribution either back to the States or into the Canadian market.

West Virginia in late July told ETP to stop construction of Rover due to environmental violations. Ohio had requested civil penalties against Rover for bentonite slurry and other discharges along the project's route. This action followed the US Federal Energy Regulatory Commission in May having ordered Rover to not begin new horizontal directional drilling for the project as a result of the spills.

ETP expects the transaction to close fourth-quarter 2017, subject to customary conditions. Upon closing, ET Rover will be owned 50.1% by Energy Transfer and 49.9% by Blackstone.

Permico plans Texas NGL pipeline, fractionator

Permico Energia LLC, Houston, plans to build a 510-mile, 24-in. OD NGL pipeline to ship West Texas Permian basin production to a newbuild 300,000-b/d fractionator near Corpus Christi, Tex. The project also includes construction of a 350-mile system of downstream product pipelines accessing both an 8 million-bbl storage site and Gulf Coast industrial users, including the Mont Belvieu, Tex., market.

The company expects to start construction second-quarter 2018 and have the full system in operation by fourth-quarter 2020. Permico is negotiating long-term supply and sales contracts.

Permico secured project funding through long-term commitments from Korean investment banking and pension fund institutions, with Sumitomo Mitsui Bank Corp. serving as lead syndicator for the senior debt financing.