World of Oil and Gas

Vol. 234 No. 2

WORLD OF OIL AND GAS

NELL LUKOSAVICH, SENIOR EDITOR

EXPLORATION

Brazil sets 11th oil and gas auction for mid-May

Brazil will hold its much-anticipated auction of new oil and gas exploration concessions on May 14 and 15, beefing up the so-called 11th bidding round with additional blocks under orders from BrazilianPresident Dilma Rousseff. The 11th-round auction, the first since December 2008, will include 289 exploration blocks, said Marco Antonio Almeida, the ministry’s secretary for oil and natural gas within the Ministry of Mines and Energy. Last month, Mines and Energy Minister Edison Lobao said that the new round would include 172 blocks, with about half of them inland and half offshore. The ministry also said that the first of auction of subsalt exploration acreage under new production sharing agreements had been set preliminarily for Nov. 28 and 29. The subsalt bidding round would be followed by the sale on Dec. 11 and 12of unconventional oil and gas concessions, the same type of shale and tight gas acreage that sparked an oil industry revolution in the U.S.

China awards 19 shale licenses to 16 companies

China’s Ministry of Land and Resources (MLR) revealed that it has awarded the exploration rights to 19 shale gas blocks to 16 companies, through an auction process that started in September 2012,. The auction, which took place in October 2012, saw 152 bids offered for the blocks. The MLR had initially auctioned off 20 shale blocks, but one tract was eventually dropped off the list, as it saw no takers. According to the MLR, the winners comprise six state-owned enterprises, eight provincially-backed companies and two private firms. Companies with power and coal interests made up more than half of the group. The MLR added that it expects the winners to put some $2.06 billion into developing the shale blocks, most of which lie in south-central and southwestern China. The U.S. EIA said unconventional natural gas deposits in the country have encouraged Beijing to court international investors. EIA said it estimated there are substantial deposits of technically recoverable shale reserves in China. The government there aims to produce 230 Bcf of shale natural gas per year by 2015.

Eni awarded three licenses off Cyprus

Italy’s Eni has won three exploration licenses, for Blocks 2, 3 and 9, offshore the Republic of Cyprus. The blocks, which cover about 4,800 sq mi, are in the Cypriot deep offshore portion of the Levantine basin. Eni is operator, with an 80% share in the licenses, while Kogas holds the remaining 20%.

UNCONVENTIONALS

Gazprom, Novatek to produce LNG on Yamal Peninsula

Russian state-controlled Gazprom has signed a deal with Novatek, the country’s largest independent producer, to create a joint venture to produce LNG on the Yamal peninsula in the Arctic. The venture will draw up plans to develop gas fields and build an LNG plant, the statement said. The companies plan to approve the project’s main parameters by the end of the year, including a timetable for making a final investment decision and conditions for financing . The venture could eventually produce around 16.5 MMmt of LNG per year, Gazprom CEO Alexei Miller said. Novatek is already developing an LNG project on the peninsula with France’s Total SA, which is expected to launch in 2016.

Shell, Kinder Morgan announce LNG export plans

A Royal Dutch Shell unit struck a deal with Kinder Morgan to export LNG out of an existing import terminal near Savannah, Georgia, the companies said. The move, which comes in the wake of a recent report commissioned by the U.S. Department of Energy that came out in favor of LNG exports, is the latest maneuver among major energy companies seeking to capitalize on North America’s newly found abundance of natural gas from shale. ExxonMobil last year announced that it wanted to turn an existing import terminal in Texas into a facility than can also export. In January, Chevron Corp. partnered with Apache Corp. to liquefy and export natural gas out of western Canada. Shell is also working on a competing western Canada LNG export project.

Heavy oil flows at PdVSA-Repsol Venezuela venture

Spain’s Repsol began oil production at its Petrocarabobo joint venture with state energy monopoly Petroleos de Venezuela, or PdVSA, in the South American country’s vast Orinoco heavy oil belt, the company said. The tapping of the first well puts forward ‘an accelerated plan’ for developing the oil block. The Spanish company said the project aims to produce 30,000 bopd in the first development phase and 90,000 bopd in the second phase, but didn’t specify when it plans to reach those targets. President Hugo Chavez’s government is counting on the joint ventures it has formed with foreign oil partners to reach lofty goals for increasing production in coming years. Venezuela, which has seen output mostly stagnate during Mr. Chavez’s 14-year reign, had said it wanted to end this year with production of 3.5 MMbpd and reach 4 MMbbl by 2014.

PRODUCTION

BP puts two fields onstream, off Norway

BP and partners have announced the successful start-up of production from Skarv field in the Norwegian Sea, one of a series of new major upstream projects that BP brought onstream in 2012. The company also announced start-up of oil production from new facilities at Valhall field, also in the Norwegian North Sea. Skarv field is 210 km west of the Norwegian coast, in water depths of approximately 350-450 m. Discovered in 1998, the field has an estimated ultimate recovery of around 100 MMboe and over 1.5 Tcf of rich gas. The Valhall redevelopment includes a new production, utilities and accommodation platform mounted on a fixed steel jacket, an external system of bridges and walkways linking the new platform to the existing Valhall complex, a power-from-shore system, and an integrated operating environment linking onshore and offshore personnel. Discovered in 1975, first production from Valhall field came in 1982. The redevelopment project is expected to extend production from the field to 2050.

Production begins from one of Brazil’s largest oil fields

The consortium formed by Repsol, Petrobras and BG Group has begun commercial production at Sapinhoá field, in Block BM-S-9 of the Brazilian pre-salt region, producing high-quality crude oil that will contribute decisively to the company’s growth plans for the coming years. The first producing well (Guara-1), with more than 25,000 bpd of production potential, has been connected to the Cidade de São Paulo platform, ahead of its scheduled start-up date. Further wells will be connected to the platform in the coming months, to reach production of 120,000 bopd in the first half of 2013. In a second development phase at Sapinhoá field, the Ilhabela Cidade platform, with a daily production capacity of 150,000 bbl of oil and 6 MMcm of gas, will be installed. It is expected to begin operation during second-half 2014. Block BM-S-9, is operated by Petrobras (45%), Repsol Sinopec Brazil (25%) and BG Group (30%). Sapinhoa is one of Brazil’s largest oil fields, with a total recoverable volume estimated at 2.1 boe. The produced crude oil will be transferred to tankers and the gas will be transported through the Sapinhoa-Lula-Mexilhao pipeline to the Monteiro Lobato treatment plant.

BUSINESS

Ukraine, Shell sign $10-billion shale gas deal

Ukraine and Shell have signed a landmark $10-billion-dollar agreement to develop unconventional gas resources, government and company officials said, as the former Soviet republic tries to reduce its dependence on Russian gas supplies. Ukraine has Europe’s fourth-largest shale gas reserves, at about 1.2 Tcm, according to EIA. Ukraine estimates its reserves to be much larger. Shell won a tender last year for the Yuzivska deposit in eastern Ukraine, which government officials say holds 2 Tcm of gas and could produce up to 15 Bcm of gas per year by 2020. Chevron won the rights to develop the slightly smaller Olekse deposit in western Ukraine, where nationalist politicians are opposing the project.

Petrobras awards $500-million contract

GE Oil & Gas has won a contract worth more than $500 million to supply turbomachinery equipment and services to Petrobras. The contract will serve the four new FPSO units, P-74, P-75, P-76 and P-77, in the Cessão Onerosa region of the Santos basin pre-salt fields, in the state of São Paulo.

Denbury to acquire Rocky Mountain acreage for $1.05 B

Denbury Resources has entered agreed to acquire producing property interests in the Cedar Creek Anticline of Montana and North Dakota from ConocoPhillips for $1.05 billion in cash. Denbury estimates that at year-end 2012, the proved conventional (non-tertiary) reserves to be acquired were around 42 MMboe, of which approximately 95% were oil and 4% were NGLs. The firm said that 91% of the reserves were proved/developed/producing. Net to the acquired interest, Denbury estimates current average production from the to-be-acquired properties at approximately 11,000 boepd.

REGULATORY AFFAIRS

Nexen extends CNOOC deal deadline

Nexen, the Canadian operator that CNOOC has agreed to buy, said the two firms extended the deadline for the closing of that $15.1-billion proposed deal by the end of February, as they await U.S. governmental approval. Canada’s government approved the deal in December, but the Committee on Foreign Investment in the U.S. has yet to approve it. Washington has a say, because Nexen also owns significant assets in the U.S. Gulf of Mexico. Authorities in the UK, the EU and China have already approved the deal, Nexen said.

EPA cites Shell Arctic rig for permit violations

Royal Dutch Shell’s Kulluk oil rig violated nine conditions of its air quality permit while drilling in waters off Alaska, the U.S. Environmental Protection Agency (EPA) said in a letter. The EPA’s findings mark the latest setback for Shell’s $5-billion Arctic drilling plans. The $292-million rig was damaged after running aground on uninhabited Sitkalidak Island south of Alaska on Dec. 31 during its trip to Seattle for maintenance. Shell later towed the Kulluk to Kiliuda Bay to assess the damage. The EPA’s complaint stated that Shell didn’t properly monitor air emissions coming out of the Kulluk, as required by the rig’s permit under the Clean Air Act. The complaint also said the Kulluk exceeded nitrogen-oxide emission limits, ran its incinerator longer than the permit allowed and failed to report excess air emissions in a timely manner.

Nebraska approves Keystone XL pipeline portion

Nebraska Governor Dave Heineman has approved a new route for the Keystone XL oil pipeline through his state. The pipeline has been held up for more than a year, in large part because of objections to the pipeline in the state. The Republican governor’s approval is one of the last remaining hurdles that the pipeline has to clear before getting a final permit from the Obama administration. The U.S. State Department is working on a separate analysis of the pipeline’s new route.

Russian court dismisses $3-billion ruling against BP

A Russian court has dismissed a $3-billion damages ruling against BP and closed the case, a court official said, ending months of legal strife for the UK company, as it finalizes a deal to sell out of its joint venture in the country and take a stake in oil giant Rosneft. An arbitration court in the Siberian town of Omsk dismissed another court’s ruling from last year, ordering BP to pay just over $3.1 billion in damages to its Russian joint venture, TNK-BP. That court had ruled in July that BP caused damage to TNK-BP, and the interests of its minority shareholders, when it sought an alliance last year with Rosneft in the Arctic exploration deal without involving TNK-BP. BP and its partners are selling TNK-BP to Rosneft in deals worth $55 billion after years of disagreements.

DISCOVERIES

Total retains major Ugandan license after new discovery

Total is set to retain a major oil license in the Lake Albertine Rift basin, after striking a new oil find following months of extensive drilling. This development is a major boost for the company’s operations in Uganda, where the exploration license for Block-1A, which contains the discovery, was due to expire next month. Total confirmed the discovery of hydrocarbons by exploration well Lyec-1 in Block 1A, but the discovery requires further appraisal to determine its potential. Total has asked Ugandan authorities to renew the license, given that it would otherwise end in February 2013. Total said early last year that it would spend $300 million on exploration and appraisal programs in Uganda.

Pacific Rubiales confirms light oil find offshore Brazil

Pacific Rubiales Energy Corp., along with operator Karoon Gas Australia, confirmed the discovery of light oil at the Kangaroo-1 exploration well, drilling on Block S-M-1101, in the Santos basin, offshore Brazil. The well has been drilled to a depth of 3,049 m, and the presence of a light oil column has been confirmed by mud log, wireline petrophysical and MDT pressure data in Eocene-aged rocks. A gross column of 25 m, and an oil/water contact, are established from pressure data interpretation. A potential gross hydrocarbon column of approximately 350 m is estimated by Karoon for the entire trip. As this was not the primary target at the Kangaroo-1 well, the discovery of oil in the Eocene reservoir provides additional information with respect to other potential prospects within the Karoon blocks. The well also exhibited good oil shows at the base of the Miocene-aged carbonate layers, but these are still under a detailed evaluation to determine their potential. The full evaluation program for the well is expected to continue through February.

Petrobras confirms oil near Espirito Santo

Petrobras announced that extension well 3-BRSA-1128-ESS, whose objective was to delineate the accumulation, has confirmed the presence of light oil and gas in sandstone reservoirs in the post-salt of Espírito Santo basin. Discovery of the accumulation had already been announced Dec. 17, 2010, when well 1-BRSA-882-ESS, known as Indra, was drilled. The new well, informally known as Arjuna, is part of the 1-BRSA-882-ESS Evaluation Plan, and is about 81 mi off the coast of Espírito Santo. The oil reservoirs, whose age ranges from the Paleocene to the Santonian, have a total thickness of some 656 ft at a water depth of 7,031 ft. A formation test will be carried out to assess the reservoir’s productivity. As verified in the discovery well, the oil found is of good quality (29° API).

Chevron makes two discoveries off Western Australia

Chevron Corp. struck two gas finds, 65 mi apart, off Western Australia. The Pinhoe-1 discovery well, 124 mi north of Exmouth, encountered around 197 ft of net gas pay in the Barrow and Mungaroo sands. The well was drilled in 3,048 ft of water to a TD of 13,396 ft. The Arnhem-1 discovery well confirmed about 149 ft of net gas pay in the upper Mungaroo Sands. Arnhem-1 is in the WA-364-P permit area, 180 mi north of Exmouth.

WPX strikes large gas find in Colorado

WPX Energy has confirmed a 16-MMcfd test flow in a discovery well in western Colorado. The well has since been choked back substantially to optimize reservoir performance and ensure maximum resource recovery. In the month of January, it produced at an average rate of 12 MMcfd. WPX has the lease rights to approximately 180,000 net acres of the Niobrara/Mancos shale play that underlies the company’s expansive leasehold position in the Piceance basin. WPX has drilled more than 4,000 wells in the Piceance basin, mostly in the tight sandstones of the Williams Fork formation.

Wintershall makes 20-40 MMboe North Sea discovery

Wintershall has discovered oil in the southern part of the Norwegian North Sea, about 200 km offshore Stavanger. The Wintershall-operated Asha Noor appraisal well 16/1-16, and its delineation, 16/1-16 A, in production license PL 457, were drilled about 3 km east of the 16/1-9 Ivar Aasen discovery and about 3 km north of Edvard Grieg field. Preliminary resource estimates range between 20 MMboe and 40 MMboe. Extensive coring, sampling and data acquisition have been carried out. The results will now be evaluated to further determine resources and the discovery’s commerciality.

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