World of Oil

Khursaniyah starts up

On April 22, Saudi Aramco began production at Khursaniyah Field. Expected production capacity at the field is around 500,000 bpd. The field should be producing 300,000 bpd within a month.

I-Hub restart delayed

Independence Hub gas platform, located in the Gulf of Mexico, is expected to resume production in mid-June. Production was originally scheduled to resume mid-May, but Enterprise Products Partners said recent repairs to the platform’s associated Independence Trail gas pipeline will require further work. Production at the hub stopped in early April after a leak was discovered on Independence Trail.

OTC attendance reaches 26-year high

On May 5-8 the Offshore Technology Conference (OTC), the world’s largest offshore event, was held in Houston. Attendance at this year’s OTC reached 75,092, a 26-year high. Attendance increased 11% from 2007.

Quake causes shut-in

On May 13, PetroChina shut in several oil and gas wells and suspended flows through a major oil products pipeline to check for possible damage after an earthquake hit the Sichuan province, one of China’s largest gas producing regions, the previous day. “The pipeline has been halted for checks shortly after the quake, and oil is being diverted to storage tanks. We have no information now when it will resume operations,” said a company official from Lanzhou city.

South Pars Phase 8 to begin production soon

On May 13, PetroChina shut in several oil and gas wells and suspended flows through a major oil products pipeline to check for possible damage after an earthquake hit the Sichuan province, one of China’s largest gas producing regions, the previous day. “The pipeline has been halted for checks shortly after the quake, and oil is being diverted to storage tanks. We have no information now when it will resume operations,” said a company official from Lanzhou city.

Gazprom and Rosneft gain control of offshore developments

Amendments to the law on foreign investments in strategic sectors, which limits foreign participation in the development of Russia’s largest oil and gas reserves, were approved by rhe country’s Federation Council in early April. When the president signs the amendments into law, the two state-control companies will automatically be handed operatorship of any new offshore projects. Amendments to the subsoil and offshore laws were also approved. These changes give development rights of Russia’s offshore reserves only to companies “which have five years’ experience in working offshore Russia and in which the state owns at least 50% interest,” said Russia’s Natrual Resources Minister Yuri Trutnev. State-run Gazprom and Rosneft, as well as Zarubezhneft, are the only companies that meet the amendments’ requirements. Trutnev also said that licenses for gas-prone blocks will be transferred to Gazprom, while oil reserves will be developed by Rosneft. The two companies will share resources between themselves without holding tenders or auctions. In cases where there could be a conflict of interest, the Energy Ministry will take what Trutney called “additional consultations.” The amendments will not apply to reserves in the Caspian Sea, the development of which is ruled by intergovernmental agreements between Kazakhstan, Azerbaijan and Russia.

Gazprom awarded nine fields by government

Gazprom was awarded exclusive rights to develop nine northern Russian gas deposits without a bid process or tender. The fields include seven onshore deposits in the Yamalo-Nenets region and two deposits on the shelf of both the Karskoye and Okhotskoye Seas-including Kirinsky Field, part of the Sakhalin-3 offshore project on Russia’s Pacific island of the same name-and have a combined total gas reserves estimated at over 70.6 Tcf. The fields are on the list of deposits of federal importance, meaning they are off limits to international explorers. This is the second tender-free award Gazprom has received from the government. Last month, Gazprom was awarded the rights to develop the large Siberian Chayanda gas field, which has estimated gas reserves of 42.4 Tcf.

EnCana splits company

EnCana has split its operations into two separate companies-a gas-focused upstream specialist and an integrated oil producer. EnCana intends to form a producing and refining oil sands-focused company to operate a third of the company’s producing and proved reserves, including its conventional oil and gas wells in Alberta and Saskatechewan and its Alberta oil sands operation. This branch of the company will also take over EnCana’s Canadian and US refining operations, which are operated under a joint-venture agreement with ConocoPhillips. The pure-play gas producer, temporarily named GasCo, will inherit EnCana’s operations in the US Rocky Mountain states and Texas, as well as its Canadian Foothills operation, which includes coalbed methane assets in western Alberta and an emerging shale play in the Horn River area of northeast British Columbia. GasCo will hold the remaining two-thirds of producing and proved reserves and is expected to retain EnCana’s name, while a new name for the oil operation has yet to be announced. The former is expected to be North America’s second-largest gas producer. “With the creation of these two companies, each management team will focus more directly on the critical success factors in its respective businesses,” said EnCana chief executive Randy Eresman.

US votes to suspend SPR increase 

On May 13, the US Senate and House approved bills to suspend crude oil purchases for the Strategic Petroleum Reserve (SPR) through the end of 2008 unless prices fall below $75 per bbl for 90 days. The bills passed with more than enough support to override a presidential veto, with 97 votes to 1 in the Senate and 385 to 25 in the House.

Enbridge gets pipeline approval

Enbridge’s planned Alberta Clipper and Southern Lights pipeline projects were approved by the Canadian government, thus moving closer to final clearance for construction from Canada’s National Energy Board. “We’re excited to achieve this major milestone towards starting construction on these two projects,” said the company’s chief executive, Pat Daniels. The two pipelines are part of a $12 billion slate of projects planned by Enbridge to accommodate rising output from Canada’s oil sands, where production is expected to reach 3 million bopd by 2015, nearly triple current volumes. The $2.2 billion Southern Lights project will carry ultralight oil-i.e., condensate-from the US Midwest to the oil sands region, where it will be blended with the tar-like bitumen so it can be shipped by pipeline. The $3 billion Alberta Clipper project will carry 450,000 bpd from the pipeline hub of Hardisty, Alberta, to Superior, Wisconsin, and will be able to be expanded to 800,000-bpd capacity. Both pipelines are expected to begin operation in 2010.

Petronas signs PSA with Uzbekistan

Petronas signed a new Production Sharing Agreement (PSA) with Uzbekistan for three fields in the northern region of Ustyurt, plus a Heads of Agreement for a proposed gas-to-liquids project. Under the PSA, Petronas will hold a 100% interest for the development and production of Urga, Kuanish and Akhchalak Fields. The heads of agreement for the proposed gas-to-liquids project was signed between Petronas and Uzbekneftegaz National Holding Company (UNG), the Uzbek national oil company. Under the agreement, Petronas will carry out detailed feasibility studies for the development.

Island nations look to extend seabed reach

Cook Islands, Kiribati, Palau, Solomon Islands, Fiji, the Federated States of Micronesia, Tonga and Papua New Guinea will apply to the United Nations to extend their exclusive economic and territorial zones under the umbrella of the inter-governmental Pacific Islands Applied Geoscience Commission (Sopac). The nations’ bid follows a successful claim in April by Australia to extend its rights over almost 1 million square miles of seabed under the UN Convention on the Law of the Sea. Sopac said the islands “have a credible claim to more than 1.5 million square kilometers (579,000 square miles) of additional space beyond their current 200-mile Exclusive Economic Zone.” Sopac said scientific studies that have revealed access to an extended continental shelf could mean more access to mineral rich resources for the island states and that assessments had identified strong grounds for the territorial extensions. Sopac Director Cristelle Pratt said securing the extended sovereignty was “critical to securing exclusive ocean development of potentially rich non-living resources, such as oil, gas, gold and silver, as well as living organisms that live on and beneath the seabed. Securing greater maritime sovereignty can provide increased revenue for Pacific states and deliver significant economic and social benefits,” Pratt said.

Pakistan, India and Afghanistan sign up for Turkmen gas

On April 24, Pakistan, India and Afghanistan signed an initial agreement in Islamabad to buy natural gas from Turkmenistan. The agreement allows India to join a 2002 agreement to begin importing gas from Turkmenistan by 2015. The Turkmenistan pipeline, projected to cost $7.6 billion, will supply 3 billion cubic feet of gas per day from Dauletabad Field to Fazilka on the Pakistan-India border. Under the agreement, Afghanistan is proposing to tap 177 million cubic feet per day from the pipeline during the first two years of operation and 494 MMcfd thereafter. India and Pakistan will split the remaining capacity.

Prudhoe Bay production back online

On May 12, BP said most of its crude output in Prudhoe Bay, Alaska, was back up after a power outage the previous Friday knocked out all six of its processing plants as well as Northstar Field. On May 9, a truck clearing snow hit a power line, causing BP to shut in production-around 380,000 to 400,000 bopd. The coordinator for Alaska’s Petroleum Systems Integrity Office, Allison Iverson, said output hit 350,000 bpd on May 12 and was increasing slowly.

Deepest extended-reach well drilled

Transocean Inc. announced that its jackup GSF Rig 127 set a world record for the longest extended-reach well ever drilled at 40,320 ft, MD, with a 35,770-ft horizontal section. The well was drilled in Al-Shaheen Field offshore Qatar. The new record of 7.6 mi also marks the first well in the history of offshore drilling that exceeds 40,000 feet. The well surpasses the prior extended-reach record of 38,322 ft, MD, set by ExxonMobil with a land rig drilling at Sakhalin Island earlier this year.

US purchase of Canadian oil sands threatened

Section 526 of the Energy Independence and Security Act of 2007-passed by Congress and signed into law by President Bush in late 2007-bars the federal government from purchasing alternative fuels whose life-cycle greenhouse gas emissions are greater than those from fuels produced from conventional petroleum sources. Canada’s Alberta oil sands have been classified as an unconventional energy source and, according to environmentalists, the oil sands create up to five times more carbon emissions than conventional oil production. Alberta has been lobbying for exemption of the oil sands from the legislation to ensure that the US military and other federal agencies are not prevented from buying them. “Classifying fuel from the oil sands as non-conventional fuel under section 526 would unnecessarily complicate the integrated Canada-US energy relationship,” said Eugenie Cormier-Lassonde, a spokeswoman for Canada’s foreign affairs department. “This would in turn have unintended consequences for both countries,” Canadian Premier Ed Stelmach says he was very clear when he spoke with US political leaders during a trip to Washington in January that Alberta will no longer allow itself to depend primarily on the American market for exports. On May 8, Stelmach told reporters: “I’m just saying that we have options and will continue to pursue them. We will expand our markets; if that means building a pipeline to the coast and selling oil to another country, we will.” The US also imports heavy oil from the Orinoco oil sands in Venezuela; however, it has not been addressed whether or not these imports would be affected by the new energy law.

Kashagan delays production 

Minister Sauat Mynbayev confirmed that, during talks last week, consortium members developing Kashagan Field in Kazakhstan had proposed delaying the start of production to 2012-2013. The main Western partners of the consortium, Eni, Total, ExxonMobil and Royal Dutch Shell, each hold 16.1%, as does Kazakhstan’s state-run KazMunaiGaz. “Even if there is a small delay ... then very concrete sanctions must be drawn up at this stage. We are trying to settle all these matters again,” Mynbayev said. Under the current agreement, the field is due to start pumping oil at the end of 2011. The field was originally scheduled to come onstream in 2005, but the project has been plagued by delays and cost overruns.

Exxon files claim against Alaska

On May 12, ExxonMobil filed a claim with the Alaska Department of Natural Resources on behalf of itself and lease partners over the revocation of Point Thomson oil and gas leases. The claim states that Alaska breached a deal when oil and gas leases on the North Slope were revoked and the state should pay $800 million in damages. ExxonMobil filed a separate request for reconsideration of a gas field development plan that was previously rejected last month. The field is estimated to hold 8 to 9 Tcf of natural gas, as well as 300 million bbl of liquids, about one-fourth of Alaska’s total reserves.

Australian government to tax condensate 

The Australian government announced on May 13 that it will begin taxing some condensate production by removing the fuel’s current exemption from a crude oil excise. “The measure will increase the return to the Australian community from allowing private interests to extract non-renewable energy resources in the North West Shelf project area and onshore,” said Treasurer Wayne Swan in a statement issued with the government’s annual budget. All condensate production from fields in the North West Shelf project area and onshore will be subject to the excise, to be levied as a percentage of the value of crude oil produced from a field. Condensate will be subject to the same excise rate as crude oil from fields discovered after Sept. 18, 1975. Under the new arrangement, the federal government will provide Western Australia’s state government with ongoing compensation for the loss of offshore petroleum royalty revenue resulting from imposing the excise on condensate, since excise payments are a deductible expense for calculating the offshore petroleum royalty.

Congo, Uganda agree to border resurvey

On May 12, Uganda announced that it and the Democratic Republic of Congo have agreed to finance the re-surveying of their common border located in the oil-rich Lake Albert Basin. The agreement, signed by Ugandan President Yoweri Museveni and Congolese President Joseph Kabila, was reached in talks mediated by Tanzanian President Jakaya Kikwete. The two countries have been involved in a border disagreement in the Lake Albert Basin since last year. Earlier in May, Congo accused Tullow Oil of enlisting the support of the Ugandan army to violate its borders. Since then the Congolese government has stripped Tullow Oil of its exploration rights on its side of the lake. Rukwanzi Island, on the southern tip of Lake Albert near Block 3A, operated by Heritage Oil Corp., is still being claimed by both countries. In a joint announcement at the conclusion of the border talks, the two presidents agreed to accelerate the co-administration of the island as the border re-surveying takes place.

Vietnam increases export duties on oil

Vietnam has doubled the tariff on crude exports to 8%. “The new tariff for crude oil exports takes effect immediately from 22 April,” announced an official from the Finance Ministry’s Tax Policy Department. Vietnam exports about 300,000 bpd of oil, almost all of its production, and relies entirely on refined product imports since it lacks major refineries. The country expects its first oil refinery to come online next February.

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