Top story from 14 May 2013, Week 19 Issue 489

BG, Ophir secure drillship for East Africa work

BG Group and Ophir Energy have signed a rig-sharing agreement for the Deepsea Metro I (DSM 1) to work offshore East Africa. The deepwater drillship will carry out exploration work in the area for at least another 18 months, it had been due to halt operations in June.

The DSM 1 will drill wells for Ophir and BG in Tanzania, in addition to carrying out work for Ophir in Tanzania and Kenya, and for BG in Kenya. Odjfell Drilling is the drilling services contractor. Extending the contract for the rig already working in the area for the companies cuts costs and reduces the effective day rate, Ophir noted.

Ophir’s CEO, Nick Cooper, said the DSM I had been working successfully on behalf of the joint venture for the past 17 months. The new deal enables both companies to further test the region’s gas potential.

The DSM-1 is in the process of drilling the Ngisi-1 exploration well in Tanzania’s Block 4. This could increase the mean in-place resource of the Chewa-Pweza-Ngisi hub to 116 billion cubic metres of mean recoverable, according to estimates.

It would also provide critical scale for future gas aggregation and development on Block 4, which would then be tied into the planned LNG development project in southern Tanzania.

The rig deal “will provide continuous exploration and appraisal activities in Tanzania through 2013 and 2014 and, in particular, enables us to plan for tests of the outboard prospectivity of Block 1 and Block 7 in September and November 2013 respectively,” said Cooper.

Ophir is working with BG on Blocks 1, 3 and 4, while it shares Block 7 with Mubadala Oil and Gas.

BG and Ophir are likely to drill an exploration well near the Jodari find, on Block 1, followed by an appraisal well and drill stem test on Block 4. Then the group will take a step further offshore and drill an outboard exploration well, in Block 1, which may find similar resources to those discovered by Anadarko Petroleum and Eni offshore Mozambique.

In Block 7, Ophir plans to drill the Mlinzi feature. Seismic was shot on the block in mid-2012 and the company has previously estimated Mlinzi may hold more than 566 bcm.

Top story from 16 May 2013, Week 19 Issue 444

Far East Energy reports on progress of 2013 drilling programme

Houston-based Far East Energy announced last week that it had finished one well at the Shouyang block and had begun drilling another, bringing the total number of new wells spudded at the site since the beginning of this year to 14.

In a statement, the company said its SYS03 appraisal well had reached total depth of 1,471 metres. The well “penetrated the #15 coal seam, revealing a total coal seam thickness of 3.77 metres”, it said.

Far East Energy has now cored the coal in its entirety and collected seven samples for desorption testing in order to assess the well’s gas content. It anticipates completing wire-line logging and open-hole testing in the near future and will finalise estimates of permeability shortly thereafter.

The company said in its statement that SYS03 was “a good control point between the P18 and SYS05 [appraisal] wells, verifying good continuity and stability of the targeted #15 coal seam”. It described this result as “encouraging” and said it bolstered optimism about the potential of the eastern and southeastern sections of the Shouyang block.

Far East Energy went on to say that it had spudded the 108D well at Shouyang. It described 108D as a development well but did not provide any further details.

It did say, though, that it had determined preliminary gas content for SYE06, another appraisal well drilled about 5 km east of the P18 well. Results from the testing of core samples from this well indicate an initial gas content of 16.76 cubic metres per tonne in the No. 15 coal seam and of 10.84 cubic metres per tonne in the No. 9 seam, it said.

This is a positive result, Far East Energy said, as it confirms that gas content is high in virtually all of the Shouyang block.

The company’s CEO, Michael McElwrath, said the drilling programme would remain the focus of Far East Energy’s operations team in China this year. The programme will encompass hydraulic fracturing operations, he said.

“As previously announced, our drilling contractors are in the process of mobilising up to 25 rigs dedicated to the Shouyang block, and we are in final preparations for the kick-off of the [fracking] programme, with 10 wells now awaiting fracking,” McElwrath said in the company statement.

Top story from 15 May 2013, Week 19 Issue 106

Dangote secures refinery funds

Africa’s richest man has secured loans amounting to US$4.5 billion from a consortium of banks to build an oil refinery in Nigeria.

Nigerian Aliko Dangote, the Chairman of the Dangote Group, made the announcement himself while speaking at the World Economic Forum in Cape Town, South Africa.

He said the loan was secured from “two offshore banks and some Nigerian banks”.

The refinery plan follows Nigeria’s efforts to reduce its dependence from oil imports.

In an interview with Bloomberg, Dangote said that refining “is an excellent business to get into”. He added: “We have already secured US$4.5 billion – [from] two offshore banks and the rest are Nigerian banks.”

In April, Dangote had announced he was entering the oil refining business with plans to invest up to US$8 billion to build the refinery, with an expected capacity of around 400,000 barrels per day, and an estimated completion date in late 2016. The identity of the banks involved in the process has not been revealed.

Despite being the largest oil producer in sub-Saharan Africa, Nigeria only runs refineries in Warri, Kaduna and Port Harcourt – processing less than 445,000 bpd owing to the lack of infrastructure and poor maintenance.

The country imports as much as 70% of the oil products it needs to sustain its economy, around four times the volume it produces – on average, 18-20 million litres per day of petrol, with the national consumption level at an average of 32-35 million litres per day.

The country exports nearly 1.8 million bpd of crude.

Dangote, said to be worth US$20 billion, is the 34th wealthiest person in the world, according to the Bloomberg Billionaires’ Index. He controls Dangote Cement, the largest producer of cement in Africa, through his Dangote Group.

Top story from 14 May 2013, Week 19 Issue 202

Providence seeks Barryroe partner

Irish oil and gas firm Providence expects to agree a deal with a partner later this year to help cover the US$1.7 billion development of the country’s first commercially viable oilfield – Barryroe – off Ireland’s southern coast.

The company is looking for a partner to take a stake in the field, estimated to hold 311 million barrels of recoverable oil. At full production, Barryroe could provide the government with up to US$653 million per year in revenue.

Providence CEO Tony O’Reilly described the process as “encouraging” and said he anticipated signing up a partner by the end of the third quarter or in the fourth quarter of this year. “We have had quite a lot of people approach us,” he said, namely international oil companies (IOCs) and national oil companies (NOCs).

Edinburgh-based Cairn Energy and the US’ Kosmos have already taken licences in the country during the last month, while super-major ExxonMobil has already started drilling a deepwater well in the Dunquin prospect, which has proven popular owing to its unusual geological structure. Results from the well are expected later this summer.

Earlier this month, Providence announced a partnership with Cairn through its wholly owned subsidiary Capricorn Ireland to farm in to frontier exploration licence 4/08 and licensing option 11/2 located in Quad 35 in the Porcupine Basin, off the west coast of Ireland.

According to the companies, the deal will allow Cairn to earn a 38% equity stake in the licences by paying 63.33% of future exploration and appraisal costs for up to two wells, subject to a cap, while cost in excess of the cap will be shared by the parties – which also include Chrysaor and Sosina – according to their equity interests.

The partners now intend to drill the appraisal well at Spanish Point in the second quarter of 2014 and expect to propose an extensive 3-D seismic work programme on licensing option 11/2.

Top story from 15 May 2013, Week 19 Issue 732

Ukraine to cut gas imports in 2013

Ukraine will cut gas imports to 30.0-32.5 billion cubic metres this year, Energy Minister Eduard Stavytsky said at a press conference in Kyiv on May 13. He did not specify how much of this would be imported by the national oil and gas company Naftohaz Ukrainy.

Last year, when Ukraine cut gas imports by 26.5% year on year to 32.8 bcm, Naftohaz accounted for 24.9 bcm of gas of the total. The remaining 7.9 bcm went to the private company Ostchem, which belongs to Dmytro Firtash, the co-owner of RosUkrEnergo (RUE), which had previously served as the middleman for gas deliveries from Russia.

Last year’s decline in imports was very steep because Naftohaz had to import more gas than usual after losing a lawsuit in the Stockholm arbitration court. The court had ruled that the Ukrainian company was obligated to return 12 bcm of gas to RUE.

Kyiv had apparently hoped to continue making substantial cuts in 2013. Late last month, the business daily Kommersant-Ukraine reported at the time, citing a draft gas balance for this year, the government was going to cut gas imports to as little as 27 bcm, as it wanted to cut dependence on Russian gas. But if Stavytsky is right, the reduction will not be quite as substantial.

The bump from 27 bcm to 30.0-32.5 bcm may stem from a ruling by a court in Kyiv on April 25. That ruling obliged Naftohaz to return 4.8 bcm of gas to the national gas network.

According to the court, Naftohaz illegally sold gas that belonged to Ukrgaz-Energo to industrial consumers in 2007-2008. Ukrgaz-Energo, which then was the monopoly importer of Russian gas, is co-owned by Naftohaz and RUE.

Stavytsky said on May 13 that the government had not yet adopted either the national gas balance or Naftohaz’s financial plan for 2013, so his figures might change. He explained the expected decrease in gas imports as the result of the introduction of energy-saving technologies in Ukraine’s industry.

The Ukrainian industrial sector does look set to cut gas consumption this year, as industrial output is expected to decline. Some reductions have already been noted; production in the metallurgical and chemical sectors, which rely on gas more than others, fell by 8% and 22% year on year respectively in January-May, according to Ukraine’s national statistics committee.

Mexico pays high price for LNG

Mexico’s surging demand for natural gas has forced state-owned utility Comision Federal de Electricidad (CFE) to enter into contracts for spot LNG cargoes at prices near those paid by Asian nations for LNG.

An energy crunch in March underscored Latin America's second largest economy's growing dependence on imports to keep power flowing, as state-run oil and gas monopoly Pemex scrambled to buy LNG at any price in order to avert potential grid failures.

“They say we bought expensive gas but today we're worried about the integrity of the system,” Alejandro Martinez, director of Pemex Gas and Basic Petrochemicals, told Reuters, referring to domestic criticism of the costly purchases.

Previously, gas piped in from a drilling boom in the US had kept import costs down but Pemex paid US$19.45 per million Btu for a spot LNG cargo in March, as imports from the US costing about US$4.40 per million Btu hit the limit of pipeline capacity.

Mexico's latest spot shipment in late April cost substantially less than its rushed March delivery at US$15.85 per million Btu, Reuters reported.

On May12, CFE said it would buy 18 spot cargoes of LNG from Trafigura for delivery over the next 18 months at an average price of US$15.84 per million Btu.

The cargoes will be sent to the Manzanillo terminal on the country’s west coast, CFE said in an e-mailed statement. The first shipment will reach the terminal on July 19, with the average volume of each cargo at 110 million cubic feet (3.1 million cubic metres) per day, Bloomberg reported.

Before 2006, almost all of Mexico's gas imports came from the US. More recently, Mexico has diversified its supply sources by importing LNG from Nigeria, Qatar, Indonesia, Peru and Yemen, although the vast majority of its imports continue to come from the US.

Manzanillo, with a capacity of 3.8 million tonnes per year, started operations in May 2012, according to the website of Samsung C&T.

Korea Gas (KOGAS), the world’s biggest LNG buyer, owns 25% of the terminal and Mitsui & Co. and Samsung C&T split the remaining 75%, according to the website.

US gas exports to Mexico grew by 24% to 1.69 billion cubic feet (47.9 mcm) per day in 2012, the highest level since data collection began in 1973.

With imports now accounting for over 30% of its total supply, Mexico's natural gas use is also at its highest level ever, the US Energy Information Administration (EIA) said.

Citing Pemex, the EIA said growing demand in the industrial sector drove Mexican gas consumption to a record-high level in 2011.

The EIA noted that four major US pipeline export projects were due to be completed between mid-2013 and the end of 2014.

Top story from 14 May 2013, Week 19 Issue 463

Thirty-five companies keen on Peru bid round

Petroperu said last week that 35 companies had displayed interested in participating in a bid round for offshore oil exploration blocks that is due to be held on May 31.

“There is Shell, ExxonMobil, Chevron among others,” said Petroperu’s head of environmental protection and community relations, Carlos Vives.

A series of international road shows have been held to promote the auction. Vides stressed that the area had been divided into nine blocks from La Libertad to Tacna, with one of the blocks covering 970 square km. Peru has eight offshore sedimentary basins, two of which are partially onshore.

Vides also said the environmental impact studies would guarantee the marine ecosystem was unaffected by exploration or production in the area. Fishermen have raised concerns that the seismic exploration could affect local fishing, as would any production.

Perupetro officials said the blocks were all located more than 10 km off the coast, and therefore would not have an impact on any artisan fishing.

The contracts are to be awarded sometime between October and November and companies will then have seven months to carry out initial exploration and determine whether there is any oil in the area. To date, only limited seismic exploration has been carried out. However, Perupetro emphasised: “Prospects with exploration potential have been identified.”

It is estimated that the companies that obtain the lots will make a minimum investment of US$450 million during the exploration phase. According to the government, to date around US$2 billion has been invested in offshore areas and with these blocks that number will likely double over the next five years.

Peru has around 580 million barrels of proven oil reserves, with the vast majority onshore, although there have been several significant offshore discoveries in the Talara area in northern waters. Production currently stands at around 64,000 barrels per day of oil, with around half being produced in the Talara area. The bulk of the blocks in this round of bidding are in southern Peru.

Top story from 14 May 2013, Week 19 Issue 425

Jordan-Iraq pipeline plans move ahead

Jordan and Iraq are moving forward to build a bilateral oil pipeline, with the designs and technical studies expected to be completed by the end of this year.

An Iraqi Ministry of Oil official said on May 6 that Jordan and Iraq had signed an agreement to build an US$18 billion double pipeline that will supply the kingdom with crude oil and natural gas.

The 1,680-km double pipeline will pump 1 million bpd of oil from Basra on the Arabian Gulf to Jordan’s Aqaba Port, and around 258 million cubic feet (7.3 million cubic metres) of gas.

“The Iraqi oil minister has signed the agreement in Baghdad and the deal was sent to and signed by the Jordanian energy minister on Sunday,” Nihad Mossa, director general of State Company for Oil Projects at the Ministry of Oil of Iraq, told The Jordan Times. “We will immediately undertake all procedures to begin the implementation of this strategic project,” Mossa added, underlining that the Iraqi government was keen to proceed with the plan.

The Jordan News Agency, Petra, reported that Jordan’s Prime Minister Abdullah Ensour met with Iraqi oil ministry officials, including Mossa, on May 6, to discuss preparations to start the implementation of the project. Some 150,000 bpd of the oil from Iraq is needed to meet Jordan’s needs.

The rest will be exported through the port of Aqaba, generating an estimated US$3 billion a year in revenues to the kingdom, said the Jordan Times report. This added that approximately 100 million cubic feet (2.83 million cubic metres) of natural gas would fulfil Jordan’s gas requirements. The excess gas will be used in pumping stations along the double pipeline.

“This week we will invite selected companies to bid for the pipeline from Basra to Haditha and by the year end we expect the designs to be ready for this part in order to proceed with the process,” Mossa was quoted as saying.

In the first quarter of 2014 a tender will be floated to build the pipeline from Haditha to Aqaba, Mossa added.

Top story from 16 May 2013 Week 19 Issue 254

IEA flags “paradigm shift” of US tight production

The introduction of oil from tight formations in North America will be as transformative to the world market over the next five years as China’s demand growth was during the last 15 years, the International Energy Agency (IEA) said on May 14.

North America supply will grow by 3.9 million barrels per day from 2012 to 2018, the group said, accounting for more than half of the increase in non-OPEC supply. Over the same period, the IEA predicted, OPEC would add 2.4 million bpd and the rest of the non-OPEC producers 2.1 million bpd.

Announcing the launch of the Paris-based group’s Medium-Term Oil Market Report (MTOMR), the IEA said the rise of light tight oil had “opened up a world of possibilities. Expectations of future supply have begun to shift”. It went on to suggest the techniques used in North America could be replicated elsewhere and some were already being used “to boost production in various conventional plays in mature areas of Russia and China, among others.”

North American supply additions in 2012 played a “critical role” in offsetting stoppages in other areas, it said.

Of the region’s increase, US tight oil supplies are expected to add 2.3 million bpd by 2018, the report said, raising the country’s total crude output to 8.4 million bpd. Adding in other liquids brings US output to 11.9 million bpd in five years’ time.

The MTOMR went on to note that suggestions that the world was moving towards heavier and sourer grades had been disproved by the rise of light tight supplies from the US. However, this boom has provided something of a challenge as well, given the widening heavy-light spread and adjustments needed to the refining and petrochemical industries.

As evidence of some of the challenges facing the industry, the IEA report pointed to Total and Suncor’s decision to stop work at the Voyageur upgrading project.

Another outcome from the cheap North American feedstock is that times have got tougher for European refineries. US export plants have become “more competitive” and are producing more light products, such as petrol and naphtha – driving direct competition with European refineries for export markets.

As the US reduces its need for oil from other countries, and emerging Asian states increase theirs, the balance of foreign reliance will shift from the OECD to the non-OECD, with the latter expected to account for more than 50% of imports by around 2018.

Top story from 14 May 2013, Week 19 Issue 156

Cuadrilla announces drilling plans in southern England

Cuadrilla Resources is planning to carry out exploratory drilling work in the summer of 2013 at a site in West Sussex in the southeast of England. The UK-based company is intending to drill a vertical well to a depth of 3,000 feet (914 metres) at Lower Stumble, near the village of Balcombe, to take underground rock samples. A possible horizontal leg extending 2,500 feet (762 metres) from the vertical section could then be drilled. Cuadrilla stated that neither the horizontal nor the vertical well would be hydraulically fractured.

A short flow test will be carried out at the Balcombe site if any oil or gas is discovered, Cuadrilla said in a May 8 statement. “It is envisaged that the work will take no more than four months and the site cleared of equipment no later than the end of September this year,” the statement said.

Cuadrilla, which won planning permission for the work in 2010, has promised to hold extensive technical, environmental and public consultations if it finds oil or gas. “Although this summer’s work will be unobtrusive, we’re fully aware that local people will have many questions about our plans and we’ll do our best to answer all of them,” said Cuadrilla’s CEO, Francis Egan.

At a May 3 meeting with Balcombe Parish Council, Cuadrilla said that it would stimulate the reservoir rock using low-pressure hydrochloric acid in a concentration between 7.5 and 15%, which it said is classified as non-hazardous. Cuadrilla informed Balcombe Parish Council that it intended to monitor water quality by drilling a small bore about 200 feet (61 metres) into the aquifer, from which it would obtain water samples before and during the main activity.

West Sussex County Council granted Cuadrilla planning permission to undertake the exploration work in 2010. West Sussex has a track record of oil exploration and production. In 1986, Conoco drilled an exploration well on the same site that Cuadrilla will use. According to data from the UK Department of Energy and Climate Change (DECC), more than 50 oil and gas wells have already been drilled in the county.

Top story from 14 May 2013, Week 19 Issue 207

New Zealand completes privatisation of Mighty River Power

The New Zealand government has successfully privatised a 49% stake in state-owned Mighty River Power, raising NZ$1.7 billion (US$1.4 billion) for state coffers.

The energy generator and retailer has nine hydropower plants (HPPs) on the Waikato River, five geothermal plants throughout the North Island and one gas-fired thermal power plant (TPP) near Auckland.

The offer price was NZ$2.50 (US$2.06) per share and the shares jumped as high as NZ$2.73 (US$2.24) shortly after trading kicked off.

Around 113,000 New Zealanders now own a slice of the power company, along with a small percentage of foreign investors.

This means that 86.5% of the company, including the government’s remaining 51% majority stake, is in New Zealand hands.

More than 400,000 people registered to buy the shares, but news that the opposition Labour Party and Green Party would create a single entity – NZ Power – that would act as a single buyer of wholesale electricity, may have put some people off.

Such a change could reduce the profit and revenue outlook for power generators and retailers, regardless of whether they are public or private.

Analysts noted, however, the likelihood of the policy ever being implemented was quite remote and once retail investors saw how Mighty River Power traders they might be more comfortable when the next float is on offer.

“The relevance of the Labour/Greens policy is going to fade as people realise it probably won’t be implemented and couldn’t have the impact they are promising,” Finance Minister Bill English told Radio New Zealand.

Research firm UBS has placed a “buy” recommendation on Mighty River Power shares and a 12-month target price of NZ$2.82 (US$2.32).

The successful float paves the way for the government to offer up the next company. The government aims to sell down its stake in Genesis Energy and Meridian Energy to 51%.

Details about the next float will be offered by the government at the presentation of the Budget. However, most people are expecting it to be Meridian.

The New Zealand Treasury has said that the combined sale of the two utility companies could raise more than NZ$3 billion (US$2.47 billion).

Top story from 15 May 2013, Week 19 Issue 663

CEZ’s Bulgarian licence looks safe, despite investigation

Czech state-owned utility CEZ looks likely to hold onto its distribution licence in Bulgaria despite a probe into its business practices in the country.

Last week, acting Energy Minister Assen Vassilev said talks were progressing smoothly between CEZ and Bulgaria's independent energy market regulator, according to regional media reports. He added that, under the ministry's early legal findings, CEZ’s licence was probably safe.

Regulators are expected to make a final decision in June.

Vassilev’s comments came a week after CEZ announced plans to launch 32 projects to upgrade and develop Bulgaria’s antiquated power infrastructure.

“We will continue actively investing in the renovation and modernisation of the power supply grid … so as to provide constant improvement of services,” a CEZ executive said this month.

Among the largest and most active companies in Central and Eastern Europe, CEZ has been taking the heat in Bulgaria since public protests erupted this winter over high power bills and other issues.

Allegations against it began to emerge in February, when a report by the State Financial Inspection Agency accused CEZ's Bulgarian subsidiaries of violating public procurement law in their business with subcontractors.

Later that month, the then Bulgarian Prime Minister Boyko Borisov resigned amid the public protests. Right before doing so, he called for CEZ’s licence to be stripped.

Currently, CEZ stands accused of many violations. The State Energy and Water Commission was expected to decide on the company's licence in April, but said last month that it needed more time to consult with other government bodies.

For its part, CEZ continues to maintain that it has done nothing wrong. Last week CEO Daniel Benes said he firmly “believes that in the end our licence will not be revoked."

The company has lodged a complaint with the European Commission. Czech President Milos Zeman took up the issue with European Council President Herman Van Rompuy at a meeting in Prague at the end of April.

CEZ owns Bulgarian power holdings serving over 2 million people. Power bills rose in the country last year amid a bitter cold snap in Central Europe.

Top story from 16 May 2013, Week 19 Issue 358

Isagen plans renewable energy expansion

Colombian power generator Isagen intends to expand into renewable energy with the construction of geothermal and wind power plants. The Medellin-based company this year plans to drill its first five wells to test geothermal emissions in the central department of Caldas, Isagen’s president, Luis Fernando Rico, told El Espectador newspaper last week.

He said the wells would be drilled near the Los Nevados National Natural Park in the Colombian Andes. The park and surrounding areas are home to eight volcanoes, meaning there is potential for geothermal power production.

The focus will be on the Macizo Volcanico del Ruiz area, where studies suggest a 50-MW plant could be built. The pre-feasibility studies are due to be completed by 2014. The public-private company still needs environmental approval for the project, Rico said.

The exploration phase will make it possible for the company to determine if it is economically feasible to build a geothermal power plant, which could take several years after initial studies are completed. Isagen secured US$2.7 million for the construction of Colombia’s first geothermal power plant in 2011 from the Inter-American Development Bank (IADB). The grant is designed to help the country to reduce a 70% reliance on hydropower, helping to shield the country from shortages stemming from an over-reliance on any one source of energy. Colombia is thought to have large geothermal resources, given that it forms part of the so-called ring of fire, a horseshoe-shape of volcanoes and seismic fault lines stretching from New Zealand to Alaska and south to Peru and Chile.

Isagen also is working with Ecuador on potential geothermal power projects, and is seeking financing for a wind farm. Rico said these types of renewable energy projects can take longer to carry out because they are more expensive than building hydropower plants.