OGJ Newsletter

May 7, 2018
International news for oil and gas professionals

GENERAL INTEREST Quick Takes

Trump slams OPEC for trying to raise global oil prices

US President Donald Trump fired a broadside at the Organization of Petroleum Exporting Countries for trying to raise crude oil prices in an Apr. 20 early-morning Tweet.

“Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!” his tweet read.

OPEC’s new president announced in February that the cartel was working toward long-term management of oil supplies by its members and collaborating countries (OGJ Online, Feb. 19, 2018). Suhail Al Mazrouei, the UAE energy and industry minister and OPEC’s president, said at the time that a draft framework for a long-term alliance would be ready by yearend.

ICC panel: PDVSA owes ConocoPhillips $2 billion

ConocoPhillips has received confirmation through international arbitration that Petroleos de Venezuela SA owes it $2.04 billion as contractual compensation for Venezuelan properties nationalized in 2007.

The ruling by an International Chamber of Commerce tribunal applies to contracts ConocoPhillips had with PDVSA and two of its subsidiaries in the Hamaca and Petrozuata heavy crude oil projects expropriated by the government and to fiscal changes enacted before the nationalizations.

In a statement, ConocoPhillips said it “will pursue enforcement and seek financial recovery of its award to the full extent of the law.”

To account for the nationalizations, the company in 2007 took a noncash, pretax financial impairment of $4.588 billion.

The company also has won a ruling from a tribunal acting under auspices of the World Bank’s International Center for Settlement of Investment Disputes that expropriation of its assets violated international law.

The amount of compensation under that ruling will be determined by proceedings still in progress.

Statoil reorganizes, reshapes leadership

Statoil AS is restructuring its corporate executive committee as part of a reorganization emphasizing Brazil and making US operations part of the company’s Development & Production International (DPI) unit.

Chief Executive Officer and Pres. Eldar Saetre said Statoil will isolate Brazil as a “new core area” entering “an important build-up phase.” He said Statoil’s US operations have matured.

“Statoil is pursuing unconventional onshore business opportunities globally and sees synergies in having US onshore operations organized within DPI to capitalize on valuable expertise and ensure learning across geographies.”

Lars Christian Bacher, now executive vice-president of DPI, will become chief financial officer.

In addition to Saetre and Bacher, members of the new corporate executive committee members, all executive vice-presidents, will be Arne Sigve Nylund, development and production Norway; Torgrim Reitan, DPI; Margareth Ovrum, development and production Brazil; Irene Rummelhoff, marketing, midstream and processing; Tim Dodson, exploration; Anders Opedal, technology, projects, and drilling; Pal Eitrheim, new energy solutions; Al Cook, global strategy and business development; and Jannicke Nilsson, chief operating officer.

The changes will occur during May-October.

API picks US House staff veteran as next president

Mike Sommers, who was chief of staff for US House Speaker John A. Boehner (R-Ohio) and had other House leadership roles for more than a decade before becoming president of the American Investment Council in 2016, was elected president of the American Petroleum Institute on May 2.

Sommers will succeed Jack N. Gerard, who announced earlier that he would retire after 10 years leading the largest US oil and gas industry association when his contract expires this summer (OGJ Online, Jan. 18, 2018).

API said its president-elect will work closely with Gerard, member companies, and its senior team in the coming months to ensure a smooth leadership transition.

API said its incoming president served at the center of nearly every major policy decision in the last decade and successfully negotiated bipartisan achievements on various landmark legislation. Sommers also served as special assistant to the president on the White House’s National Economic Council in 2005, API said.

Erin Energy enters voluntary bankruptcy

Erin Energy Corp., an oil and gas producer focused on Sub-Sahara Africa and based in Houston, has filed court documents seeking reorganization under voluntary bankruptcy.

The firm said it is seeking a source of debtor-in-possession financing for working capital needed to continue operations.

Erin Energy holds interests in licenses in Nigeria, Gambia, and Ghana.

Exploration & DevelopmentQuick Takes

Bidding modest in Iraqi licensing round

Regional and Chinese operators dominated modest bidding in an exploration and development licensing round in Iraq (OGJ Online, Nov. 28, 2017).

Eni SPA was the only international operator submitting a bid in the offering of service contracts for 11 blocks near the Iranian and Kuwaiti borders and offshore. It made one unsuccessful bid, according to press reports.

Five of the blocks attracted no bids.

Crescent Petroleum, Sharjah, won three licenses. Two licenses went to Geo-Jade and one to United Energy Group, both of China.

Uruguay’s offshore round draws no bids

Uruguay’s third oil and gas licensing round attracted no bids, Uruguayan National Oil Co. announced.

The government offered 17 blocks in three offshore basins under production-sharing terms (OGJ Online, Aug. 14, 2017).

BP deepwater well off Nova Scotia approved

BP Canada has received approval to drill an exploratory well designated Aspy D-11 in deep water offshore southeastern Nova Scotia. The Canada-Nova Scotia Offshore Petroleum Board approved the well after lengthy environmental reviews and consultations with interested groups.

The well will be the first in a program to include as many as seven exploratory holes on four blocks south and southeast of existing production, 230-370 offshore. Subsequent drilling will require further approvals. The Seadrill West Aquarius semisubmersible rig will drill the Aspy D-11 in 2,777 m of water about 330 km from Halifax.

Aker BP gets regulatory nod for Barents Sea drilling

Norway’s Petroleum Safety Authority approved plans by Aker BP ASA, operator for production license 659 in the Barents Sea, to drill an appraisal well about 65 km north-northeast of Snohvit field. Plans call for the appraisal drilling to appraise a discovery in 357 m of water on the Norwegian shelf, PSA said. Odfjell Drilling’s semisubmersible Deepsea Stavanger will drill well 7222/10-1 to appraise Svanfjell discovery 72221/12-1.

Aker BP holds 50% interest in PL 659. Partners are Petoro AS with 30% interest and Lundin Norway AS with 20% interest. PL 659 was awarded during February 2012.

Hess acquires interest in Kaieteur block off Guyana

Hess Corp. subsidiary Hess Guyana (Block B) Exploration Ltd. will acquire a 15% participating interest in the Kaieteur block offshore Guyana from ExxonMobil Corp. affiliate Esso Exploration & Production Guyana Ltd.

The work program in 2018 will include processing and interpretation of about 5,700 sq km of 3D seismic data and evaluation of a future drilling program, the company said.

“Our interest in the Kaieteur block extends our company’s already significant acreage position in the prolific Guyana-Suriname basin, which has delivered seven world-class oil discoveries to date,” said Chief Executive Officer John Hess (OGJ Online, Feb. 28, 2018).

The 13,535-sq-km Kaieteur block lies 250 km offshore Guyana, adjacent to and in the same geological basin as the Stabroek block, where more than 3.2 billion boe in total recoverable resources have been discovered to date, the company noted. Hess has a 30% working interest in the Stabroek block.

Guyana has provided Hess and ExxonMobil an instrument detailing the transfer of interest, which has been completed.

ADNOC picks Inpex unit as Lower Zakum concession lead

Abu Dhabi National Oil Co. (ADNOC) has signed an agreement appointing JODCO Lower Zakum Ltd., a wholly owned subsidiary of Japan’s Inpex Corp., as the asset leader for Abu Dhabi’s Lower Zakum concession area.

Inpex in February was awarded 10% interest in Abu Dhabi’s offshore Lower Zakum concession (OGJ Online, Feb. 27, 2018). At the same time the company’s stakes in Abu Dhabi’s Satah and Umm Al Dalkh concession were extended for 25 years. Inpex also maintained its 40% stake in Satah and increased its Umm Al Dalkh share to 40% from 12%.

JODCO, as asset leader, will lead the development plans to achieve the concession objectives, including building up and sustaining production targets, achieving agreed recovery rates, and cost optimization targets.

Lower Zakum is one of three new separate concession areas that make up the former ADMA offshore concession, namely Lower Zakum, Umm Shaif and Nasr, and Satah Al Razboot (SARB) and Umm Lulu.

Other international shareholders in the Lower Zakum concession area are China National Petroleum Corp., an Indian consortium led by ONGC Videsh, Italy’s Eni SPA, and France’s Total SA. ADNOC retains 60% stake in the concession.

Drilling & ProductionQuick Takes

Canada limits upstream releases of methane

Oil and gas producers in Canada must control releases of methane from major facilities—and stop venting from hydraulically fractured wells—under new regulations from the federal government. The aim is to lower emissions of the greenhouse gas from 2012 levels by 40-45% by 2025.

The regulations require specific industry action as early as 2020, with full implementation by the end of 2023. They allow provinces to impose their own regulations if they are at least as stringent as those in the federal program.

The federal regulations apply to upstream oil and gas “facilities that handle significant volumes of gas,” according to the government.

Effective Jan. 1, 2020, the federal regulations require:

• Implementation of a leak detection and repair program.

• Inspections for leaks three times per year and corrective action when leaks are found.

• Annual measurements of emissions of natural gas from compressor vents and corrective action when emissions are higher than applicable limits.

• A halt to venting of natural gas from well completions involving hydraulic fracturing and the use instead of conservation of gas for reuse on site or for sale or flaring and clean incineration.

Effective Jan. 1, 2023, the regulations require:

• For venting from general production facilities, a limit of 1,250 cu m/month of natural gas coupled with conservation of gas for reuse on site or for sale or flaring and clean incineration.

• For venting from pneumatic devices, a limit of 0.17 cu m/hr of natural gas coupled with conservation of gas for reuse on site or for sale, or replacement with nonemitting or low-emitting bleed pneumatic devices.

PSAC trims forecast for Canadian drilling

The Petroleum Services Association of Canada has trimmed its forecast for wells drilled in Canada this year by 500 units.

In a midyear update, the group now projects 2018 drilling of 7,400 wells. PSAC made its earlier projection last October (OGJ Online, Nov. 1, 2017).

It based its updated forecast on an average natural gas price of $1.75/Mcf (Can.) at the Alberta hub, a price of West Texas Intermediate crude oil of $61.45/bbl (US), and a Canada-US exchange rate averaging 79¢.

PSAC Pres. and CEO Tom Whalen welcomed the recent improvement in the WTI price but noted “the disconnect and volatility of the differential” between WTI and Western Canadian Select (WCS) crude. The WCS discount has widened recently because of pipeline congestion and the growing use of more-expensive means of transport.

Compared with October numbers, the PSAC lowered its forecast for 2018 drilling in Alberta to 3,800 wells from 4,000, in British Columbia to 500 wells from 730, and in Saskatchewan to 2,840 wells from 2,930. It raised its forecast for Manitoba drilling to 255 wells from 230.

Husky lowering heavy oil production

Another Canadian producer is trimming production of heavy oil in response to crude prices regionally discounted against global markets because of pipeline constraint.

Husky Energy, Calgary, has lowered its 2018 production guidance to investors by 10,000 boe/d “in light of wide Canadian heavy oil differentials” in the first quarter of the year.

It now expects its global production this year to average 310,000-320,000 boe/d.

It said it will substitute discounted crude from other producers for processing in its downstream operations.

Last month, Cenovus Energy Inc. said it is trimming production from thermal projects but didn’t lower its projection for average 2018 output (OGJ Online, Mar. 22, 2018).

Clarksons notes rising offshore FID value

The total value of worldwide offshore final investment decisions will exceed $100 billion for the first time in 5 years in 2018, predicts Clarksons Research, London.

The group estimates total offshore FID value in 2017 rose 40% to $80 billion.

Overcapacity remains a problem for the offshore oil and gas industry, Clarkson notes.

It cites 130 cold-stacked mobile offshore drilling units and 216 warm-stacked units reported worldwide.

New production unit doubles Zohr output

Eni SPA and partners have doubled output capacity of deepwater Zohr natural gas field in the Mediterranean offshore Egypt to 800 MMscfd with installation of a second production unit designated T-1.

The company expects capacity to increase to 1.2 bcfd this month and to 2 bcfd by yearend. Zohr is to reach plateau production of 2.7 bcfd next year.

The field, in 1,500 m of water, began producing in December last year (OGJ Online, Dec. 20, 2017).

Eni in March agreed to sell a 10% interest in the Shorouk Block encompassing the field to Mubadala Petroleum for $934 million. After the sale its interest will be 50%. Other partners are Rosneft, 30%, and BP, 10%.

Petrobel, an operating company jointly held by Eni and Egyptian General Petroleum Corp. are executing the project on behalf of Petroshorouk, jointly held by Eni and partners and Egyptian Natural Gas Holding Co.

PROCESSINGQuick Takes

Husky extinguishes fire at Wisconsin refinery

Husky Energy Inc. has extinguished a fire that broke out on Apr. 26 at its 47,500-b/cd refinery in Superior, Wis. (OGJ Online, Apr. 26, 2018).

Local authorities declared the refinery fire out at about 6:45 p.m. CST on Apr. 26, the operator said in a statement.

The company has taken additional fire-prevention measures but reiterated it will continue to closely monitor the situation.

While Husky Energy confirmed several people were injured during the incident and taken to hospital, local media have reported anywhere from 11 to 20 individuals who sustained injuries at the site as a result of the explosion and subsequent fire.

No fatalities have been reported in the wake of the incident.

“The emergency situation at the refinery is now over, and our focus in the days ahead will turn to the investigation and understanding the root cause of the incident,” said Rob Peabody, Husky Energy’s chief executive officer.

The refinery explosion led to Wisconsin’s Douglas County Emergency Management (DCEM) to issue an evacuation order for areas 10 miles south, 3 miles east and west, and within a 1-mile radius of the refinery, according to DCEM’s web site.

The evacuation order was lifted, however, as of 6:00 a.m. CST on Apr. 27.

Aramco lets contract for Wasit gas plant

Saudi Aramco has let a contract to SNC-Lavalin Group Inc., Montreal, to build additional installations at the operator’s 2.5-bcfd Wasit gas processing plant north of Jubail Industrial City in Saudi Arabia’s eastern province.

As part of its scope of work under the multimillion-dollar contract, SNC-Lavalin will construct the Arabiah condensate handling facility (ACHF) and sour-water disposal unit project (SWDUP) at the gas plant, including installation of process equipment as well as related civil and structural piping, electrical, and instrumentation and control systems, the service provider said.

Work on the project is already under way and is scheduled to be completed in late 2019, SNC-Lavalin said.

The service company disclosed no further details regarding the ACHF and SWDUP.

Part of Saudi Arabia’s Vision 2030 economic roadmap and designed to feed 1.7 bcfd of sales gas to the national master gas network to help meet domestic energy demand, the Wasit gas plant reached full startup in 2016, according to Aramco’s 2016 annual report.

The gas plant processes nonassociated Khuff gas from Arabiyah-Hasbah offshore field (OGJ Online, Jan. 28, 2011).

TRANSPORTATIONQuick Takes

Saskatchewan joins Alberta in BC squeeze

Saskatchewan’s government has joined Alberta in implicitly threatening to restrict energy movement to British Columbia, raising stakes in a dispute over expansion of the Trans Mountain pipeline system.

Energy and Resources Minister Bronwyn Eyre introduced legislation establishing permitting procedures for individuals or corporations seeking to move oil, natural gas, or refinery products out of the province.

“The bill responds to the inaction by the federal government to assert its jurisdictional authority to ensure the Trans Mountain Expansion Project proceeds,” the energy ministry said in a news release that didn’t specify BC as the target.

The BC government is blocking the project, for which Kinder Morgan Canada Ltd. received National Energy Board approval 18 months ago.

The planned tripling of Trans Mountain capacity between Alberta and Burnaby, BC, would provide a needed connection to global markets for production of bitumen and heavy oil from Alberta and Saskatchewan.

Alberta introduced legislation like its neighboring province’s earlier this month (OGJ Online, Apr. 17, 2018).

The Saskatchewan energy ministry said the government considers the bill’s authority to restrict energy movement out of the province a last resort, to be used “only if the Trans Mountain pipeline continues to be stalled by provincial obstruction and federal inaction and if the Alberta government acts upon its similar legislation.”

It said, “Lack of access to tidewater cost Saskatchewan oil producers an estimated $2.6 billion and cost the province an estimated $210 million in taxes, royalties, and other revenue last year.”

Saskatchewan is Canada’s second-largest oil producer, behind Alberta. The oil and gas industry accounts for about 15% of its gross domestic product.

Enbridge: Line 3 Minnesota proposal intact

Enbridge said it will continue seeking approval of its proposed route for the Line 3 replacement through Minnesota despite an administrative law judge’s Apr. 23 recommendation that it use the existing crude-oil pipeline corridor through the state.

In a nonbinding decision, Minnesota Public Utilities Commission (MPUC) Administrative Law Judge Ann C. O’Reilly upheld the need for Line 3 replacement and expansion but said the route through Minnesota should not change.

The 1,097-mile Line 3 carries 390,000 b/d of light crude oil from Edmonton, Alta., to Superior, Wisc., about half the original capacity. Replacement projects in Canada and the US would increase system capacity to an average 760,000 b/d of light and heavy crude and help relieve a transportation bottleneck in Alberta and Saskatchewan.

The existing Line 3 Minnesota segment is 282 miles of 34-in. pipe. Enbridge proposes to lay 36-in. pipe along the existing route between the North Dakota border and Clearbrook, Minn., then deviate to the south and increase the Minnesota mileage to 340 miles.

O’Reilly based part of her objection to the deviation on Enbridge’s plan to leave idle pipelines in place along the original route.

Responding to her decision, Enbridge said concern for sovereignty of tribal communities transited by the original route was among several reasons for its preference for the planned deviation.

“Further, the final environmental impact statement approved by the MPUC demonstrates that, on balance, our preferred route is least impactful on tribal/cultural resources, proximity to drinking water, and high-consequence population areas,” it said.

The company said it “won’t speculate on any potential implications of alternate routes. We will continue to seek approval for our preferred route.”