Oil and gas journal volume 108, issue 49

International Petroleum News and Technology

4 NEWSLETTER
25 STATISTICS

|

www.ogj.com

Dec. 27, 2010

10 LETTERS / CALENDAR

12 JOURNALLY SPEAKING

14 EDITORIAL

28 MARKETPLACE

30 EDITOR’S PERSPECTIVE / MARKET JOURNAL

|

Volume 108.49

24 EQUIPMENT
24 ADVERTISERS’ INDEX

GENERAL INTEREST
16 Two accidents increase
pipeline safety awareness

Nick Snow

Pipeline accidents in Michigan and San Bruno,
Calif., raised public awareness about pipeline
safety issues that companies and regulators
already were trying to address

20 Chevron suspends pipeline use in Nigeria
as ExxonMobil, Shell resume operations
Eric Watkins

21 Chevron claims forged signatures
in Ecuador lawsuit
Eric Watkins

18 Government sues
to recover costs from
Macondo blowout, spill

21 WATCHING THE WORLD
Pipeline diplomacy in Asia

Nick Snow

The US Department of Justice and
Environmental Protection Agency jointly sued
to recover damages from the Apr. 20 Macondo
well accident, which claimed 11 lives, and
subsequent crude oil spill into the Gulf of
Mexico.

18 Court refuses to block
EPA’s GHG regulation
Nick Snow

22 Flow rate tops 10,000 b/d at Llanos discovery
22 EXPLORATION/DEVELOPMENT BRIEFS

CLICK TO VIEW VIDEO

Visit our video library
www.ogj.com/index/video.html

19 FGE-FACTS: Chinese, India
expand refining capacities
19 WATCHING GOVERNMENT
Bromwich isn’t done

101227ogj_1 1

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OGJ
Newsletter

Dec. 27, 2010

International News
for oil and gas professionals

GENERAL INTEREST Q U IC K TA K E S
Producers to see strong cash flows in 2011
North American oil and gas producers can expect another year
of “robust” cash flows supported by strong oil prices, stable
though depressed gas prices, and modestly improving economic conditions, according to Fitch Ratings.
The discount of the gas price to the energy-equivalent price
of oil will continue, the crediting-rating service said in an annual outlook.
“Few indicators point to a resurgence in natural gas pricing, which would likely require a sustained improvement in
demand combined with an industry-wide reduction in natural
gas-focused drilling,” the firm said. “While Fitch would anticipate drilling to maintain leases will begin to slow in 2011, current natural gas rig counts far exceed the level required to only

maintain existing supply levels.”
Other Fitch expectations for 2011:
• High merger and acquisition activity.
• Strong liquidity for companies focused on oil.
• The possible need for small gas-focused producers to redetermine their borrowing bases.
• Rising costs.
• Regulatory uncertainty related to the Gulf of Mexico and
to shale drilling.
• Increased share repurchases and dividends for integrated
and large producers.
Fitch’s base price assumptions for 2011 are $75/bbl for West
Texas Intermediate crude and $4/Mcf for Henry Hub gas. Its
2012 price projections are $65/bbl for oil and $4.50/Mcf for gas.
Its long-term price assumptions are $60/bbl and $5.50/Mcf.
The firm said it raised its oil price assumption modestly to
reflect concerns about inflation after the recent monetary easing by the US Federal Reserve. Strong demand in China and
India also is supporting the crude price.
Fitch lowered its gas price outlook because of concerns
about oversupply and cost-structure improvements related to
efficiency gains in most new US shale plays.
A threat to creditworthiness of the US producing industry—not part of Fitch’s base-case outlook—is a “significant
double-dip recession” and consequent reduction in oil demand
by China and India.

Oil & Gas Journal

101227ogj_5 5

For up-to-the-minute news,
visit www.ogjonline.com

Cabot, DEP reach accord for Dimock area
Cabot Oil & Gas Corp. agreed to pay $4.1 million in a settlement with Pennsylvania’s Department of Environmental Protection that will allow the Houston independent producer to
resume Susquehanna County well completion operations in
early 2011.
The Dec. 15 agreement and consent order superseded previous orders and modifications. It set out specific obligations
related to claims by 19 households in the area, including the
establishment of escrow accounts for the households.
Cabot also agreed to pay the Pennsylvania DEP $500,000
to offset the state’s expense of investigating stray gas migration
complaints in the area for 2 years, DEP said.
DEP Secretary John Hanger said each householder will
receive twice the value of his or her home, with a minimum
$50,000 payment. Cabot also said it would install mitigation
devices in each house, he said.
“In addition to the significant monetary component of this
settlement, there is a requirement that Cabot continue to work
with us to ensure that none of their wells allow gas to migrate,”
said Hanger. DEP also is dropping its plan to construct a 5.5mile pipeline from the Lake Montrose water treatment plant to
the residences after the proposed project encountered significant opposition from local governments and from Cabot, which
DEP planned to bill for the project.
“This agreement provides a reasonable and pragmatic way
forward for all parties,” said Dan O. Dinges, Cabot’s chairman,
chief executive, and president. “The common ground we found
to settle provides the right balance of regulations, financial
payments, timely execution, and operational safeguards that in
the end will protect the resources of Pennsylvania.”
Dinges said Cabot’s well completion operations in the Dimock-Carter Road area would resume during the first quarter
2011, and new drilling could begin during the second quarter
2011.

BOEMRE issues additional drilling guidance
The US Bureau of Ocean Energy Management, Regulation, and
Enforcement (BOEMRE) issued additional deepwater drilling guidance. The information contained no new regulatory
requirements, but was designed to assist offshore oil and gas
producers in complying with recently issued rules, the US De-

5

12/22/10 10:42 AM


IPE BRENT / NYMEX LIGHT SWEET CRUDE
$/bbl
92.00
91.00
90.00
89.00
88.00
87.00
86.00
85.00

US INDUSTRY SCOREBOARD — 12/27
4 wk.
average

Latest week 12/10

Dec. 15

Dec. 16

Dec. 17

Motor gasoline
Distillate
Jet fuel
Residual
Other products

Dec. 15

Dec. 16

Dec. 17

0.6
3.9
–3.9
–0.8
11.3
3.2

9,102
3,765
1,409
488
4,470
19,234

9,063
3,608
1,403
539
4,236
18,849

0.4
4.4
0.4
–9.5
5.5
2.0

Crude production
NGL production2
Crude imports
Product imports
Other supply2, 3
TOTAL SUPPLY
Refining, 1,000 b/d

5,581
2,022
8,553
2,404
2,020
20,580

5,514
2,058
8,315
2,767
1,666
20,320

1.2
–1.7
2.9
–13.1
21.2
1.3

5,494
2,028
9,140
2,561
1,886
21,109

5,310
2,048
9,163
2,762
1,732
21,015

3.5
–1.0

–0.3
–7.3
8.9
0.4

Crude runs to stills
Input to crude stills
% utilization

14,569
15,111
85.9

13,807
14,334
81.0

5.5
5.4
—

14,584
15,017
85.3

14,336
14,639
82.8

1.7

2.6
—

Dec. 20 Dec. 21 1

Latest week 12/10

Latest
week

Previous
week1

346,018
214,773
161,305
43,763
39,774

355,872
213,964
160,211
45,749
40,143

–9,854
809
1,094
–1,986
-369

Stock cover (days)4
Dec. 15

Dec. 16

Dec. 17

Dec. 20 Dec. 21 1

Same week
year ago1 Change

Change

Change,
%

Stocks, 1,000 bbl
Crude oil
Motor gasoline
Distillate
Jet fuel–kerosine
Residual

332,387
217,213
164,363
41,013
36,474

13,631
–2,440
–3,058
2,750
3,300

Change, %

Crude
Motor gasoline
Distillate
Propane
Futures prices5 12/17

23.8
23.7
43.3
50.4

24.7
23.9
43.0
56.8

88.25
4.20

88.50
4.47

–3.6
–0.8
0.7
–11.3

Change, %
23.9
24.1
45.8
39.9

–0.4
–1.7
–5.5
26.3

Change

Light sweet crude ($/bbl)
Natural gas, $/MMbtu

Change

–0.25
–0.27

4.1
–1.1
–1.9

6.7
9.0

71.53
5.09

16.72
–0.89

%
23.4
–17.5

1

Based on revised figures. 2OGJ estimates. 3Includes other liquids, refinery processing gain, and unaccounted for crude oil. 4Stocks
divided by average daily product supplied for the prior 4 weeks. 5Weekly average of daily closing futures prices.
Source: Energy Information Administration, Wall Street Journal

Dec. 15

Dec. 16

Dec. 17

Dec. 20 Dec. 21 1

PROPANE - MT. BELVIEU / BUTANE - MT. BELVIEU
¢/gal
172.00

171.00
170.00

BAKER HUGHES INTERNATIONAL RIG COUNT: TOTAL WORLD / TOTAL ONSHORE / TOTAL OFFSHORE
3,900
3,600
3,300
3,000
2,700
2,400
2,100
1,800
1,500
300
0

3,233
2,891

342

Nov. 09

Dec. 15

Dec. 16

Dec. 17

Dec. 20 Dec. 21 1

NYMEX GASOLINE (RBOB)2 / NY SPOT GASOLINE3
¢/gal
242.00
240.00
238.00
236.00
234.00
232.00
230.00
228.00

Change,
%

Supply, 1,000 b/d

IPE GAS OIL / NYMEX HEATING OIL

132.00
131.00
130.00
129.00

YTD avg.
year ago1

9,003
3,588
1,490

518
4,167
18,766

Dec. 20 Dec. 21 1

NYMEX NATURAL GAS / SPOT GAS - HENRY HUB

¢/gal
248.00
246.00
244.00
242.00
240.00
238.00
236.00
234.00

YTD
average1

9,054
3,727
1,432
514
4,638
19,365

TOTAL PRODUCT SUPPLIED

$/MMbtu
4.20
4.15
4.10
4.05
4.00
3.95
3.90
3.85

Change,
%

Product supplied, 1,000 b/d

WTI CUSHING / BRENT SPOT
$/bbl
92.00
91.00
90.00
89.00
88.00
87.00
86.00
85.00

4 wk. avg.
year ago1

Dec. 09

Jan. 10

Feb. 10

Mar. 10

Apr. 10

May 10 Jun. 10

Jul. 10

Aug. 10

Sept. 10

Oct. 10

Nov. 10

Note: Monthly average count

BAKER HUGHES RIG COUNT: US / CANADA
1,709

1,800
1,600
1,400

1,193

1,200
1,000
800

50 0

3 68

400
200
Dec. 15

1Not

Dec. 16

2Reformulated

Dec. 17

Dec. 20 Dec. 21 1

available.
gasoline blendstock for oxygen blending
3Nonoxygenated regular unleaded

6

101227ogj_6 6

0

10/2/09

10/16/09 10/30/09 11/13/09 11/27/09

10/9/09 10/23/09

11/6/09

11/20/09

12/11/09

12/4/09

10/1/10

10/15/10

12/18/09 10/8/10

10/29/10 11/12/10

10/22/10

11/5/10

11/26/10 12/10/10

11/19/10

12/3/10

12/17/10

Note: End of week average count

Oil & Gas Journal | Dec. 27, 2010

12/22/10 10:42 AM


partment of the Interior agency said.
“As we continue to strengthen oversight and safety and environmental protections, we must ensure that the oil and gas
industry has clear direction on what is expected,” BOEMRE Director Michael R. Bromwich said on Dec. 13.
BOEMRE said that the issues addressed in the information
document include compliance issues relating to the Drilling
Safety Rule (or Interim Final Rule), NTL-6 (including Worst
Case Discharge calculations), and NTL-10, as well as further information on BOEMRE’s inspections of blowout preventer testing, oil spill response plans, and environmental assessments for
deepwater drilling plans.

BOEMRE develops programmatic EIS
The US Bureau of Ocean Energy Management, Regulation, and
Enforcement has begun work to develop the first geological and
geophysical programmatic environmental impact statement for
areas of the US Outer Continental Shelf off the South and MidAtlantic coasts.
It said that the PEIS would evaluate environmental effects of

seismic surveys and other G&G activities to gather information
about potential oil, gas, and renewable energy development on
the OCS.
US Interior Secretary Ken Salazar said seismic surveys along
the South and Mid-Atlantic coasts possibly could take place. He
removed the area from the 5-year OCS program that BOEMRE
is developing for the 2012-17 period in response to questions
arising from the Apr. 20 Macondo well blowout. BP PLC operated Macondo.
The blowout resulted in an explosion and fire on Transocean
Ltd.’s Deepwater Horizon semisubmersible and a Gulf of Mexico crude oil spill.
Industry sources have expressed skepticism to OGJ that any
such seismic studies will occur because producers customarily
don’t pay for them without firm assurances that they will lead
to development of identified resources, and Congress probably
would not authorize what would be new funding in a climate
emphasizing cutting costs and reducing the federal budget deficit.

interests in East Kalimantan. Coalbed methane from the newly
awarded Sanga Sanga CBM production sharing contract, if successful, could be liquefied at Bontang. That VICO CBM Ltd.
joint venture is operated by Eni 50%, and BP PLC owns the
other 50%.

Low-volume New York Marcellus fracs tap gas
Montreal independent Gastem obtained gas flows from Utica
shale and two members of the Marcellus shale using permitted
low-volume frac jobs in a vertical well in Otsego County, NY.
Gastem ran separate fracs on the Chittenango and Union
Springs members of Marcellus at the Ross-1 well. Both succeeded, and the company completed the well for 200 Mcfd of
gas. Current flow is 150 Mcfd after 4 weeks of flow. BJ Services
ran the fracs.

Gastem also put a frac on Utica in November 2009 and
tested that interval at more than 100 Mcfd. The frac involved
a fluid volume under the state’s existing Supplemental Generic
Environmental Impact Statement guidelines with a maximum
volume of 80,000 gal.
The company said, “The combined economics of the multilayer targets (Utica, Oneida, and Marcellus) will provide development opportunities until the NYSDEC (Department of
Environmental Conservation) completes their review process
for horizontal shale wells now scheduled for release on June 1,
2011.”
Gastem is completing a seismic program on existing leased
property and plans to initiate development wells targeting “local gas for local use” in the area by mid-2011. Gastem is operator with 80% working interest in 33,000 acres.

Eni to operate Poland Baltic basin shale blocks
Italy’s Eni SPA said it plans to start drilling for shale gas in the
Baltic basin in northeastern Poland in 2011.
The company will purchase Minsk Energy Resources and
become operator of three licenses totaling 1,967 sq km. The
exploration commitment is for six wells.
Eni will apply knowledge and expertise acquired through
its North Texas Barnett shale joint venture. Poland is Eni’s first
venture into unconventional gas in Europe.

EXPLORATION & DEVELOPMENT Q U IC K TA K E S
DRILLING & PRODUCTION Q U IC K TA K E S
East Kalimantan find exceeds 1.4 tcf of gas
Three wells drilled off Indonesia’s East Kalimantan confirm
more than 1.4 tcf of gas in place in Jangkrik field on the Muara
Bakau permit, said operator Eni SPA.
Jangkrik-3, in 416 m of water 70 km off eastern Borneo, went
to 2,849 m and encountered more than 60 m of net gas pay in

excellent quality reservoir Pliocene sands. Further exploration
is planned nearby in 2011, Eni said.
Permit interests are Eni 55% and GDF Suez 45%. The joint
venture is studying fast-track development through the Bontang LNG plant, where Eni owns spare capacity.
Eni operates six of the 12 permits in which it has working

Oil & Gas Journal | Dec. 27, 2010

101227ogj_7 7

Chevron to spend $4 billion on Big Foot field
Chevron Corp. plans to spend $4 billion to develop Big Foot oil
and gas field in the deepwater Gulf of Mexico.
Big Foot field lies in 5,200 ft of water about 225 miles south
of New Orleans. Discovered in 2006, Chevron estimates Big
Foot field contains more than 200 million boe of total reserves.
Chevron plans to use an extended tension-leg platform with
an onboard drilling rig and production capacity of 75,000 b/d
of oil and 25 MMcfd of natural gas.
Oil production is scheduled to start in 2014. Primary pay
sands are Middle to Upper Miocene. Three exploration and ap-

7

12/22/10 10:42 AM


praisal wells with multiple sidetracks have been drilled.
Chevron USA Inc. has a 60% working interest in the Big
Foot project.

Mobile nitrogen rejection unit takes the field
EQT Corp., Pittsburgh, has placed in service the world’s first
mobile nitrogen rejection unit for nitrogen frac flowback at a
Devonian Huron shale well in eastern Kentucky.
Developed by private IACX Energy, Dallas, the unit covers
158 ft by 38 ft on five trailers at the wellsite and employs nitrogen sponge technology.
In eastern Kentucky, the lower-pressured Huron shale has
responded especially well to nitrogen fracturing treatment, but
large volumes must be flowed back and vented until the hydrocarbon gas reaches pipeline quality. The clean-up period can
last as long as 2 months, depending on reservoir quality.
Nitrogen frac flow-back applications are especially challenging because of the ever-changing composition of the gas entering the system. After a nitrogen frac, the percentage of nitrogen
in the gross gas stream follows a steep gradient downward until
most or all of the injected nitrogen is blown back.
The mobile iron sponge units yield 99+% recoveries of C3+
hydrocarbons, which contributes significantly to project economics where natural gas liquids are extracted and sold. All of
the unit’s processes function at lower volumes and pressures
and do not utilize chemicals or other environmentally undesirable materials, IACX noted.

Saudi Aramco to boost Shaybah production
Saudi Aramco let contracts worth nearly $500 million to GE
Energy for equipment to expand Shaybah field’s oil production
and natural gas-processing capacities.
The expansion is expected to boost crude oil production capacity to 1 million b/d compared with Shaybah’s current capacity of 750,000 b/d.
Shaybah, in southeastern Saudi Arabia, has undergone various expansions. An upgrade completed in June 2009 boosted
its crude capacity from 500,000 b/d to its current capacity.
Aramco also is working to boost its natural gas capacity at
Shaybah by building an NGL plant to process 2.4 bscfd of lowsulfur, sweet gas and extract 264,000 b/d of NGLs.
GE agreed to supply 11 gas turbine-generators, 44 compressors, and motors. With the latest contracts, GE has supplied a
total of more than 110 GE gas turbines to Saudi Aramco and

nearly 100 GE centrifugal compressors.

PROCESSING Q U IC K TA K E S
Enterprise, Chesapeake outline Eagle Ford plans
Enterprise Products Partners LP has entered into 10-year agreements to handle a substantial portion of Chesapeake Energy
Corp.’s liquids-rich natural gas production in the Eagle Ford
shale.
Chesapeake’s gross acreage position currently includes more

8

101227ogj_8 8

than 625,000 acres in and around the oil and NGL-rich areas
of the Eagle Ford shale in the South Texas counties of Dimmit,
LaSalle, McMullen, Webb, and Zavala.
The agreements provide Chesapeake with firm commitments for gas transportation, processing, and NGL transportation and fractionation services.
Chesapeake’s natural gas initially will be gathered, compressed, and moved by Chesapeake Midstream Development
LLC for eventual transportation and processing by Enterprise
at its existing facilities while a previously announced natural
gas processing plant in Texas is completed.
Enterprise expects the new cryogenic processing facility to
be completed early in 2012, at an initial processing capacity of
600 MMcfd and an initial NGL extraction capacity of 75,000
b/d. The NGL production from Chesapeake’s gas ultimately will
be transported from this processing plant to Enterprise’s previously announced 127-mile NGL pipeline, extending to its NGL
fractionation complex in Mont Belvieu, Tex.
Earlier this month, Enterprise began operations at its fourth
NGL fractionator at Mont Belvieu at 75,000 b/d, increasing
nameplate capacity at the facility to 305,000 b/d (OGJ Online,

Dec. 1, 2010).
The new NGL pipeline, scheduled for completion in early
2012, will have an initial capacity of more than 85,000 b/d and
would be readily expandable to over 120,000 b/d, according to
Enterprise.
Activity in the Eagle Ford Shale continues to increase as 115
rigs working in the play have drilled more than 330 wells completed to date, Enterprise says. Enterprise estimated total current production from the play at about 425 MMcfd natural gas
and 35,000 b/d crude oil and condensate.

Oneok to invest in Woodford shale
Oneok Partners LP plans to invest $180-240 million by firsthalf 2012 for NGL projects in the Cana-Woodford shale and
Granite Wash plays. The projects will add 75,000-80,000 b/d
of raw, unfractionated NGL to the partnership’s existing gathering systems. Oneok’s investment includes:
• Building more than 230 miles of 10-in. and 12-in. OD
NGL pipelines that will expand the partnership’s existing gathering system by connecting to three new third-party natural
gas processing facilities being constructed with total capacity
of 510 MMcfd and to three existing third-party natural gas processing facilities undergoing expansion.
• Installing additional pump stations on the Arbuckle Pipeline to increase capacity to 240,000 b/d. Arbuckle is a 440-mile
NGL pipeline running from southern Oklahoma through the
Barnett shale of north Texas to the partnership’s fractionation
and storage facilities at Mont Belvieu on the Texas Gulf Coast.
Oneok expects these projects to be completed during firsthalf 2012. The additional raw NGLs from the expanded natural
gas processing capacity will be fractionated at either the partnership’s fractionation facilities or by third parties.
Oneok already announced $1.3-1.6 billion in other projects

Oil & Gas Journal | Dec. 27, 2010

12/22/10 10:42 AM

in 2010, including:
• Construction of two 100 MMcfd natural gas processing
facilities in the Bakken shale and related infrastructure.
• Construction of a 525- to 615-mile NGL pipeline to transport unfractionated NGL produced in the Bakken to the Overland Pass Pipeline, a 760-mile NGL pipeline extending from
southwestern Wyoming to Conway, Kan.
• Related capacity expansions for Oneok Partners’ 50% interest in the Overland Pass Pipeline to transport the additional
unfractionated NGL volumes from the new Bakken pipeline.
• Expansion of the partnership’s fractionation capacity at
Bushton, Kan., by 60,000 b/d to accommodate the additional
NGL volumes from Overland Pass Pipeline.
• Installation of seven additional pump stations along the
existing Sterling I NGL distribution pipeline, increasing its capacity by 15,000 b/d.
• Other investments in the Woodford shale in Oklahoma,
in both the natural gas gathering and processing and the natural gas liquids segments.

Qatar Petroleum, Shell to develop petchem project
Qatar Petroleum and Shell have signed a memorandum of understanding to study development of a large petrochemicals
complex in Ras Laffan Industrial City, Qatar.
The agreement was signed Dec. 21 in Doha by Abdulla bin
Hamad Al-Attiyah, deputy prime minister and minister of energy and industry for Qatar, and Shell CEO Peter Voser.
Under consideration is a monoethylene glycol plant of up
to 1.5 million tonnes/year using Shell’s proprietary OMEGA
(Only MEG Advantaged) technology and other olefin derivatives to yield more than 2 million tpy of finished products.
In Qatar, Qatar Petroleum and Shell are jointly building the
Pearl gas-to-liquids project and Qatargas LNG Train 4 in Ras
Laffan.

TRANSPORTATION Q U IC K TA K E S

in 2007, pegged the project at $16 billion.

In addition to Imperial, the Mackenzie Valley Aboriginal
Pipeline LP, ConocoPhillips Canada (North) Ltd., Shell Canada
Ltd., and ExxonMobil Canada Properties hold shares in the
project. If the proponents decide to build the Mackenzie Gas
Project, they would also be required to obtain various permits
and authorizations from other boards and government agencies
before construction could commence.
Imperial filed a letter with the NEB in March stating it
would not decide whether to proceed with the project until late
2013, citing administrative delays in the approval process and
subsequent difficulties keeping the project adequately staffed.

Koch Pipeline shareholders approve Eagle Ford line
Koch Pipeline Co. LP received final shareholder approval to
build a pipeline into Karnes County, Tex., that will transport
120,000 b/d of Eagle Ford shale crude by late 2012. Engineering
for the line to connect Eagle Ford producers to Corpus Christi,
Tex., has begun, with construction pending permitting.
The 16-in. OD line will be expandable to more than 200,000
b/d and includes direct pipeline connections to producer tank
batteries in Karnes and DeWitt counties. A new station, likely
near Helena, Tex., will connect into Koch Pipeline’s existing
crude system in Pettus and Refugio.
By yearend 2011, Koch plans to have completed several
projects adding more than 140,000 b/d of pipeline capacity in
South Texas.
The company is already building a line to expand delivery
capability to Flint Hills Resources’ Ingleside waterborne terminal. It has also leased 30,000 b/d capacity from NuStar Logistics on a line from Pettus to Corpus Christi (OGJ Online, Oct.
19, 2010).
In August, in conjunction with Arrowhead Pipeline LP,

Koch announced an agreement and joint tariff to add 50,000
b/d of oil and condensate capacity during 2011 from the western counties of the Eagle Ford trend.

NEB approves Mackenzie Gas Project

NEB export application filed for BC LNG plant

Canada’s National Energy Board approved applications for
the construction and operation of the Mackenzie Gas Project
through northern Canada.
The proposed project includes the 1,196-km Mackenzie Valley Pipeline, three onshore natural gas fields, a 457-km pipeline
to carry natural gas liquids from Inuvik, NWT, to an existing
oil pipeline at Norman Wells, NWT, and other related facilities.
The Mackenzie Valley Pipeline, which would run from the
Beaufort Sea to northwestern Alberta, is designed to carry up
to 1.2 bcfd.
The NEB attached 264 conditions to the project’s approval in
areas including engineering and safety provisions that must be
met if the project is to be built. If the federal cabinet approves
NEB’s decision, the agency will issue appropriate approvals, including a certificate of public convenience and necessity.
Project operator Imperial Oil’s latest cost estimate, released

KM LNG, an affiliate of Apache Corp., Houston, applied to
Canada’s National Energy Board for approval to export LNG
from the Kitimat LNG terminal planned for Bish Cove, BC.
The application requests permission to export as much as 10
million tonnes/year of LNG for 20 years. The quantity matches
the two-phased capacity design of the plant. KM LNG is the
operator of the proposed plant. All LNG exported under the
applied-for license will be produced by KM LNG.

In November, said the company’s announcement, members
of the Haisla Nation approved a lease of reserve lands required
for construction and operation of the plant. Federal and provincial environmental authorizations for initial design of the plant
have also been obtained.
The plant is owned by affiliates of Apache Canada Ltd. (51%)
and EOG Resources Canada Inc. (49%).

Oil & Gas Journal | Dec. 27, 2010

101227ogj_9 9

9

12/22/10 10:42 AM


LETTERS
ETHANOL MANDATES
Your ethanol editorial entitled “Subsidies
and incentives” is right on target (OGJ, Dec.
6, 2010, p. 24). Last week a Wall Street Journal editorial made some of the same points
that were included in your excellent opinion
piece. They pointed out that ethanol is the
only product that enjoys 1) a federal subsidy,
2) tariff protection, and 3) federal consumption mandates.
However, as I am sure you know, this is
not the whole story. Neither the WSJ nor the
OGJ mentioned how this ethanol “favorite
nations” treatment has affected food prices.
The federal mandates and subsidies have

resulted in significant increases in the prices
of beef, corn, breakfast cereals, and many
other corn-based food products.
As the federal government looks for ways
to reduce unwise and unnecessary spending,
the first place to look is ethanol policy. Eliminating unnecessary and unwanted subsidies
and mandates would free American taxpayers
of $7 billion/year of wasted expenditures.
William H. Barlow
Houston

2010-2011 EVENT CALENDAR
Denotes new listing or ME TECH 2011, Dubai,
+44 20 7357 8394, +44
a change in previously
20 7357 8395 (fax),
published information.
e-mail: conferences@
europetro.com, website:
www.europetro.com/
JANUARY 2011
index.php?option=com_
event<emid=240.
GEO India Conference
& Exhibition, New Delhi, 24-26.

europetro.com, website:
www.europetro.com/
index.php?option=com_
event<emid=244.

27-28.

API Exploration and Production Winter Standards
Meeting, Fort Worth,
Tex., (202) 682-8000,
(202) 682-8222 (fax),
website: www.api.org.
24-28.

Offshore Production
Technology Summit,
London, +44 (0)20
7202 7690, +44 (0)207
202 7600 (fax), e-mail:
nathan.robinson@
wtgevents.com, website:
www.offshore-summit.
com. Jan. 31-Feb. 1.

Annual Gas Arabia
Summit, Abu Dhabi, +44
207 067 18 00, e-mail:
c.pallen@theenergyex+44 (0)20 7840 2139,
API Inspection Summit
change.co.uk, website:
+44 (0)20 7840 2119
& Expo, Galveston, Tex., www. www.theenergy(fax), e-mail: geo@
(202) 682 8000, (202) exchange.co.uk/3/13/
oesallworld.com, website: 682-8222 (fax), website: articles/135.php. Jan.
www.geo-india.com.

www.api.org. 24-27.
30-Feb. 2.
12-14.
Gas Transport & Storage
Summit, Berlin, +44
(0)20 7202 7690, +44
(0)20 7202 7600 (fax),
e-mail: richard.jones@
wtgevents.com, website:
www.gtsevent.com.
19-20.

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to get the most comprehensive and
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PennEnergyBuyers Guide, contact your PennEnergy
Account Representative for details.

10

101227ogj_10 10

Shale Gas Symposium,
Calgary, Alta., (877)
927-7936, (877) 9271563 (fax), website:
www.canadianinstitute.
com/energy_resources/
ShaleGas.htm. 25-26.
European Gas Conference, Vienna, +44 207
067 1800, +44 207
430 0552 (fax), e-mail:
, website:
/>articles/214.php 25-27.

Global LNG Forum, Barcelona, +421 257 272
11, +421 255 644 490,
e-mail; beata.kyblova@
jacobfleming.com, website: www.jacobfleming.
com. 2-3.
East African Petroleum
Conference & Exhibition (EAPCE), Kampala,
+256 414 320714, _256
414 320437 (fax),
e-mail: eapce11@
petroleum.go.ug. website:
www.petroleumafrica.com/en/eventdetail.
php?Eventld=522. 2-4.

NACE Northern Area

Western Conference,
Regina, Sask., (281)
228-6200, (281)
228-6300 (fax), e-mail:
,
website: www.events.
nace.org/sarwebsites/
SPE Middle East Uncon- NorthernAreaWestern/
ventional Gas Conference conference11/index.
and Exhibition, Muscat, asp. 6-8.
+971 4 390 3540, +971
4 366 4648 (fax), e-mail: Arctic Technology
, web- Conference, Houston,
site: www.spe.org. Jan.
(888) 945-2274, ext.
31-Feb. 2.
617, website: www.arct-

FEBRUARY 2011

IADC Health Safety
Environment and Training
Conference & Exhibition,
Houston, (713) 2921945, (713) 292-1946
API/AGA Joint Committee
(fax), e-mail: info@iadc.
on Oil and Gas Pipeline
org, website: www.iadc.
Welding Practices, Fort
org/conferences. 1-2.

Worth, Tex., (202) 682
8000, (202) 682-8222
Topsides Conference &
(fax), website: www.api.
Exhabition, Galveston,
org. 26-28.
Texas, (918) 831-9160,
(918) 831-9161 (fax), ePipe Tech Americas
mail: wendyl@pennwell.
Summit, Houston, (416)
com, website: www.
214-1144, e-mail: lautopsidesevent.com/index.
rence.allen@wtgevents.
html. 1-3.
com, website: www.
pipetechamericas.com/
Global LNG Forum,
program. 27-28.
Barcelona, +421 257
272 112, +421 255
Russian & CIS Executive
644 490, e-mail; beata.
Summit, Dubai, +44
kyblova@jacobfleming.
20 7357 8394, +44
com, website: www.
20 7357 8395 (fax),
jacobfleming.com. 2-3.
e-mail: conferences@

ictechnologyconference.
org/. 7-9.
Pipeline Coating International Conference,
Vienna, +44(0)117 924
9442, +44(0)117 989
2128 (fax), e-mail: info@
amiplastics.com, website:
www.2.amiplastics.
com/Events/Even.
code=C369&sec=1222.
7-9.
International Gas Analysis
Symposium & Exhibition,
Rotterdam, +31 (0) 15
2 690 147, +31 (0) 15
2 690 190 (fax), e-mail:
, website:
www.gas2011.org. 9-11.
SPE Project and Facilities
Challenges Conference
at METS, Doha, +971
4 390 3540, +971 4
366 4648 (fax), e-mail:
, website: www.spe.org. 13-16.

Oil & Gas Journal | Dec. 27, 2010

12/21/10 9:33 AM

2010-2011 EVENT CALENDAR
Pipeline Pigging &
Integrity Management
Conference, Houston,
(713) 521-5929, (713)
521-9255 (fax), e-mail:
, website:
www.clarion.org. 14-17.

World Heavy Oil Congress, Edmonton, Alta.,
(888) 799-2545, (403)
245-8649 (fax), website:
www.worldheavyoilcongress.com. 15-17.
Russia Offshore Annual
Conference & Exhibition,
Moscow, +44 207 067
1800, +44 207 430
0552 (fax), e-mail: wra@
theenergyexchange.
co.uk, website: www.
theenergyexchange.
co.uk/3/13/articles/179.
php. 15-17.

World Heavy Oil Congress, Edmonton, Alta.,
(888) 799-2545, (403)
245-8649 (fax), website:
www.worldheavyoilcongress.com. 15-17.
IPAA International
Forum, Houston, (202)

857-4722, (202) 8574799 (fax), website:
www.ipaa.org. 16.

Nitrogen+Syngas International Conference &
Exhibition, Dusseldorf,
+44 (0) 20 7903 2438,
+44 (0) 20 7903 2432
(fax), e-mail: ,
website: www.crugroup.
com. 21-24.

www.theenergyexchange. registration@pennwell.
co.uk/3/13/articles/157. com, website: www.
php. Feb. 27-Mar. 1.
renewableenergyworldevents.com. 8-10.

MARCH 2011

NPRA Security Conference & Exhibition,
Houston, (202) 4570480, (202) 457-0486
(fax), e-mail: info@npra.
SUBSEA Tieback
org, website: www.npra.
Forum & Exhibition, San org. 1-2.
Antonio, (918) 831-9160,
(918) 831-9161 (fax),
Annual Arctic Gas
e-mail: registration@pen- Symposium, Calgary,
nwell.com, website: www. Alta., (877) 927-7936,
subseatiebackforum.

(877) 927-1563 (fax),
com. 22-24.
website: www.arcticgassymposium.com/index.
SPE European Conferhtml. 1-2.
ence on Health Safety
and Environment in Oil
SPE/IADC Drilling Conferand Gas Exploration,
ence, Amsterdam, +44
Vienna, +44 (0)1224
20 7299 3300. +44 20
318088, website: www. 7299 3309 (fax), e-mail:
spe-uk.org. 22-24.
, website:
www.spe.org. 1-3.
Pipe Line Contractors
Association Convention, APPEX/AAPG Property &
Prospect Expo, London,
Maui, (214) 969-2700,
+44 (0) 207 434 13
e-mail: ,
99, e-mail: Europe@
website: www.plca.org.
aapg.org. website: www.
22-26.
europetro.com. 1-3.
GPA Europe Conference,
Turkmenistan Asia Oil &
Amsterdam, +44 (0)
1252 625542, website: Gas Summit, Singapore,
+44 (0) 20 7328 8899,

www.gpaeurope.com/
events/event/16. 23-25. +44 (0) 20 7624 9030
(fax), e-mail: info@
summittradeevents.com,
Annual Petcoke Conwebsite: www.summitference, San Diego,
tradeevents.com/Hold(832) 351-7827, (832)
ingA2011.php. 3-4.
351-7887 (fax), e-mail:

NAPE Expo, Houston,
(972) 993-9090, (972)
993-9191 (fax), e-mail:
,
,
website: www.napeexpo. website: www.petcokes.
com. 25-26.
com. 16-18.

API Spring Committee
on Petroleum Measurement Standards Meeting,
Dallas, (202) 682 8000,
Middle East Downstream (202) 682-8222 (fax),
Laurance Reid Gas
Week Annual Meeting, website: www.api.
Conditioning Conferorg.7-10.
Abu Dhabi, +44 (0)
ence, Norman, Okla.,
(405) 325-2248, (405) 1242 529 090, +44 (0)
325-7164 (fax), e-mail: 1242 529 060 (fax), e- CERA Week, Houston,
mail: wra@theenergyex- (713) 840-8282, (713)

, website:
change.co.uk, website: 599-9111 (fax), e-mail:
www.engr.outreach.
, website:
www.wraconference.
ou.edu. 20-23.
www.cera.com. 7-11.
com. 27-30.
IP Week, London, +44
0 20 7467 7116, e-mail:
,
website: www.energyinst.
org.uk. 21-23.

Corrosion UAE Conference, Abu Dhabi, 00 971
50 264 1202, e-mail:
, website:

Oil & Gas Journal | Dec. 27, 2010

101227ogj_11 11

Renewable Energy World
Conference & Expo
North America, Tampa,
(918) 831-9160, (918)
831-9161 (fax), e-mail:

e-mail: www.gastech.
co.uk. 21-24.

596 5135, +44 207 596
5106 (fax), e-mail: ilyas.
idigov@ite-exhibitions.
GPA Europe at GasTech com, website: www.gioConference & Exhibition, gie.com/2011/. 29-30.
Amsterdam, +44 (0)
AIChE Spring Meeting
1737 855000, +44 (0) Offshore Asia Confer& Global Congress on
ence & Exhibition, SinProcess Safety, Chicago, 1737 855482 (fax), e(800) 242-4363, (203) mail: , gapore, (918) 831-9160,
(918) 831-9161 (fax),
775-5177 (fax), website: e-mail: www.gastech.
co.uk. 21-24.
e-mail: registration@
www.aiche.org/conferpennwell.com, website:
ences/springmeeting/
index.aspx. 13-17.
IADC Drilling HSE Asia www.offshoreasiaevent.
com. 29-31.
Pacific Conference &
NACE Corrosion Confer- Exhibition, Singapore,
ence & Expo, Houston, (713) 292-1945, (713) SEG Shale Gas Forum,
292-1946 (fax), e-mail: Chengdu, Sichuan,
(800) 797-6223, (281)
228-6329 (fax), website: , website: (918) 497-5500, (918)
www.iadc.org/confer497-5557 (fax), website:
www.events.nace.org/
ences. 23-24.
www.seg.org. 30-31.
conferences/c2011/index.asp. 13-17.
OMC Offshore Mediter- APRIL 2011

ranean Conference,
Offshore West Africa
GPA Annual Convention,
Conference & Exhibition, Ravenna, +39 0544
San Antonio, (918) 493219418, e-mail: conferAccra, Ghana, (918)
3872, (918) 493-3875
, website:
831-9160, (918) 831(fax), e-mail: pmirkin@
www.omc.it/2011.
9161 (fax), e-mail:
gpaglobal.org, website:
23-25.
registration@pennwell.
www.GPAglobal.org. 3-6.
com, website: www.
offshorewestafrica.com. SPE Production and
Middle East Downstream
15-17.
Operations SympoWeek Annual Meeting,
sium, Oklahoma City,
Abu Dhabi, +44 1242
TUROGE Turkish Inter- (800) 456-9393, (972) 529 090, +44 1242
national Oil & Gas Con- 952-9435 (fax), e-mail: 529 060 (fax), e-mail:
, website:
ference & Showcase,
27-29.
Ankara, +44 (0) 20
change.co.uk, website:
7596 5000, +44 (0) 20
www.wraconferences.

7596 5111 (fax), e-mail: NPRA International Pet- com/2/4/articles/105.
enquiry@ite-exhibition. rochemical Conference, php. 3-6.
com, website: www.
San Antonio, (202) 457turoge.com. 16-17.
0480, (202) 457-0486
Hannover Messe
(fax), e-mail: info@npra.
Pipeline Technology
NPRA Annual Meeting, org, website: www.npra. Conference, Hannover,
San Antonio, (202) 457- org. 27-29.
+49 511 90992 22, +49
0480, (202) 457-0486
511 90992 69 (fax), e(fax), e-mail: info@npra. Howard Weil Annual
mail: ,
org, website: www.npra. Energy Conference, New website: www.pipelineorg. 20-22.
Orleans, (504) 582conference.com. 4-5.
2500, website: www.
MEOS/SPE’s Middle East howardweil.com/energy- ShaleCon Conference,
Oil & Gas Conference & conference.aspx. 27-31. Montreal, Q.C., (800)
882-8684, e-mail: info@
Exhibition, Manama, +44
iapc.com, website: www.
(0)20 7840 2139, +44
SPE European Well
(0)20 7840 2119 (fax), e- Abandonment Seminar, shalecon.com/Event.
mail: meos@oesallworld. Aberdeen, +44 1224
aspx?id=388398. 4-7.
com, website: www.
495051, e-mail: jane.
meos2011.com. 20-23. , Hannover Messe International Trade Show,

website: www.spe-uk.
Hannover, +49 511 89
GASTECH International org. 29.
0, +49 511 89 32626
Conference & Exhibition,
(fax), website: www.
Amsterdam, +44 (0)
GIOGIE Georgian Inter1737 855000, +44 (0) national Oil & Gas Energy hannovermesse.de/
1737 855482 (fax), eand Infrastructure Con- homepage_e. 4-8.
mail: , ference, Tbilisi, +44 207

11

12/21/10 9:33 AM


JOURNALLY SPEAKING

News alarms trouble industry

SAM FLETCHER
Senior Writer

12

101227ogj_12 12

“We live in the midst of alarms; anxiety beclouds
the future; we expect some new disaster with each
newspaper we read.” Abe Lincoln said that in the

days leading up to the American Civil War, but it
could just as easily have come from any oil man
following political developments from the Macondo
blowout earlier this year.
Seems every news report brings details of new
moves by elected and appointed government officials to ensure what never happened before in
decades of deepwater drilling will never happen
again.
As a veteran newspaper reporter, I know daily
news is “history in a hurry.” It would be interesting to see what conclusions future historians will
draw from current news reports. For instance, on
Dec. 15 the Associated Press reported the US Justice Department filed a civil suit against BP PLC
and eight other companies to recover billions of
dollars as a result of the Macondo blowout. The
suit would hold companies liable for crude removal costs and damages under the Oil Pollution
Act and for civil penalties under the Clean Water
Act. That’s in addition to the government’s uncompleted criminal investigation, of course.
Damages sustained by the US are not yet determined, and BP has already waved existing limitations on the dollar amount of its liability and is
paying out billions of public and private claims.
More than 300 lawsuits have been filed in federal
court in New Orleans by individuals and groups
seeking financial redress from the blowout that
also killed 11 workers aboard the rig.
Other defendants in the case are Anadarko
Exploration & Production LP and Anadarko Petroleum Corp., MOEX Offshore 2007 LLC, Triton
Asset Leasing GMBH, Transocean Holdings LLC,
Transocean Offshore Deepwater Drilling Inc.,
Transocean Deepwater Inc.; and Transocean’s insurer, QBE Underwriting Ltd., Lloyd’s Syndicate
1036. Anadarko Petroleum and MOEX are minority partners in the well. Transocean, which owned
the rig destroyed in the blowout, keeps pointing

out it is indemnified under a standard drilling
contract with BP against any costs resulting from

the blowout. It told AP, “No drilling contractor has
ever been held liable for discharges from a well
under the Oil Pollution Act of 1990.” AP reported QBE/Lloyd’s can be held liable only up to the
amount of insurance policy coverage under the
Oil Pollution Act and is not being sued under the
Clean Water Act.

Hardline reaction
Considering the government’s hardline reaction to a
deepwater oil spill in the Gulf of Mexico, this country’s most prolific source of oil and gas, future historians might marvel at another Dec. 15 AP report
of President Barack Obama meeting with 20 business leaders to discuss how to boost the anemic US
economy and improve “their own testy relations.”
In that meeting, Obama talked of overhauling the
tax system, although he wants to strip the oil industry of tax breaks common for other businesses. He
spoke of easing business regulation while increasing regulation of oil and gas at a time other countries are seeking the US industry’s expertise.
AP reported, “With US unemployment at 9.8%
and weak home prices and tight credit placing a
drag on growth, the president was looking to shake
loose more than $1.9 trillion in untapped corporate cash to help the recovery.” Maybe he should
build a fire under the US Bureau of Ocean Energy
Management, Regulation, and Enforcement that is
sitting on drilling permits for even shallow-water
projects. Offshore companies are ready to spend
money and put people back to work if only the
government would release its chokehold on the
industry.
Meanwhile, BOEMRE is drafting new offshore

regulations before investigation of the cause of the
blowout is completed. Director Michael Bromwich
claims safety regulation can’t wait, which will
seem ironic if historians read another Dec. 15 AP
report. The US government finally outlawed traditional drop-side cribs “after the deaths of more
than 30 infants and toddlers in the past decade
and millions of recalls.” A new standard for fixedside cribs takes effect next June.

Oil & Gas Journal | Dec. 27, 2010

12/22/10 10:40 AM


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101227ogj_13 13

12/20/10 4:40 PM


EDITORIAL

A compromised tax bill
A last-minute tax bill, hailed for the bipartisan
compromise that produced it, leaves the oil and gas
industry with much to fear. Perfection, of course,
was never in prospect for legislation passed during
the administration of President Barack Obama that
extends tax cuts enacted during the administration
of George W. Bush. Especially with its provisions
on energy, however, the Tax Relief, Unemployment
Insurance Reauthorization, and Job Creation Act of
2010 sets new standards for imperfection.
The best feature of the law is bipartisan recognition that something had to be done. With the
nation’s economic health still unsure, lawmakers
could not allow tax rates to jump back to where
they were before reductions of 2001 and 2003.
They also could not allow the alternative minimum tax to smack millions more middle-class
taxpayers. Both major political parties would
have shared blame for the consequent economic
pounding. Party leaders, therefore, compromised.

Who yielded what
Democrats yielded on their insistence that rate-cut
extensions apply only to taxpayers with incomes
below thresholds said to distinguish the wealthy

from the otherwise. And many of them must have
loathed the need to sustain any product of an administration they continue to portray as thoroughly
wicked. Largely for these reasons, most Republicans claimed a political victory. But they compromised, too.
The bill extends the tax-rate reductions only for
2 years. As more Republicans than Democrats understand, tax-rate cuts designed to stimulate the
economy must be permanent. Now, anyone planning investments must accommodate the threat of
higher taxes at the end of the extension period.
The new law further salutes the notion of stimulus through tax reduction with a lower payroll-tax
rate for employees. But that cut lasts only 1 year.
To reach full force as a tool of economic stimulus, a tax-rate cut should be not only permanent
but also accompanied by cuts in federal spending.
By that standard, the new bill technically fails. It
increases spending—directly with, for example,
extended jobless benefits and investment aid for

14

101227ogj_14 14

wind-energy projects and indirectly with tax credits for businesses and individuals. But the dollar
amount looks small in comparison with a separate
$1 trillion spending bill the Senate killed as the
tax compromise became law.
On balance, neither political party can gloat.
Both sides saw the urgent need for action, and
both compromised to make it happen. Both will
fight another day over taxes and spending.
Meanwhile, neither party seems to have
learned anything about the problems a government creates by making energy choices best left
to markets. In addition to extending by a year a

program under which wind-power developers receive taxpayer funding for as much as 30% of their
projects, the tax bill reauthorizes tax credits for
mandated, tariff-protected biofuels. A government
that heaves public money at noncommercial energy—even after public support wanes, as it has for
fuel ethanol—can’t be expected to deal responsibly with the economic energy on which prosperity
depends.
The oil and gas industry thus has no reason
yet to think Republican gains in Congress last
November mean a prompt end to one of its most
trying political periods in modern memory. A
test will come when lawmakers get serious about
funding their spending spree. When Congress
needs money, oil and gas companies should hide
the cash box.

Obama’s vision
Without question, Republican control of the House
and gains in the Senate lower chances for realization
of Obama’s vision for oil and gas taxation, with its
repeal of producer incentives, denial of tax breaks
available to other industries, and other such horrors. But Republicans aren’t yelling “Never!” about
those ideas. When tax-cut push comes to deficitreduction shove, something will have to give.
The tax bill averts economic disaster without
providing sufficient stimulus, leaves in place a
costly and ineffective approach to energy, and lets
Obama claim new political footing characterized
by compromise without having made him compromise much at all. It isn’t a triumph.

Oil & Gas Journal | Dec. 27, 2010

12/22/10 10:41 AM


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101227ogj_15 15

12/20/10 4:40 PM


GENERAL INTEREST

Two accidents increase
pipeline safety awareness
Nick Snow
Washington Editor

Pipeline accidents in Michigan and San Bruno, Calif., raised
public awareness about pipeline safety issues that companies and regulators already were trying to address, officials
of three trade associations told OGJ.
A July 26 crude oil leak on Enbridge Energy Partners
Ltd.’s Line 6B generated public inquiries about the system’s
age and integrity (OGJ Online, July 29, 2010).
The Line 6B spill reached Talmadge Creek and 25 miles
of the Kalamazoo River in Michigan.
A Sept. 9 explosion of Pacific Gas & Electric Co.’s natural gas gathering system in San Bruno raised the issue of
encroachment—residential and business development over
existing lines in previously rural areas. Eight people died in
the San Bruno accident (OGJ Online, Dec. 15, 2010).
The National Transportation Safety Board has yet to release its findings on those two accidents.
“San Bruno was an awful accident with a silver lining: it

helped generate public consideration of encroachment’s effects,” said Andrew J. Black, president of the Association of
Oil Pipelines.
Christina Sames, vice-president of operations and engineering at the American Gas Association, said, “We can’t
stop people from building, but we want them to build responsibly.”
AGA, which has primarily local distribution companies
(LDCs) as members, urges local governments issuing building permits to consider requiring that an apartment building’s parking lot be placed closer to a pipeline than the
apartment building itself, she said.

16

101227ogj_16 16

Enbridge Inc. crews continued cleaning up crude oil in the Kalamazoo
River on Oct. 14. Oil leaked from its
Line 6B into nearby Talmadge Creek
on July 26. As of Nov. 17, more than
7,000 people had worked in response
to the pipeline rupture with more than
30 local, state, and federal agencies.
Photo from Enbridge.

Donald F. Santa, president of the Interstate Gas Pipeline
Association of America, said pipeline safety is a shared responsibility between industry and regulators at various levels of government.
“The industry needs to keep its systems in top shape, but
San Bruno also showed that local government has a role in
recognizing a pipeline is there and letting everyone know
about it,” Santa said.

Wrong questions
Martin E. Edwards, INGAA’s vice-president for government

affairs, said many questions raised after the San Bruno explosion did not take into account that the pipeline was laid a
decade before the community grew over it.
The US Department of Transportation on Dec. 16 released
recommendations developed by the Pipelines and Informed
Planning Allowance to address issues raised by development
near pipelines.
DOT offered nearly 50 recommended practices for local
communities, developers, and pipeline operators. The recommendations suggest ways land-use planning and development decisions can protect existing pipelines and growing communities, said DOT.
It also provided recommendations on how communities
can gather information about local transmission pipelines,
and how local planners, developers, and pipeline operators
can communicate during development phases to understand
pipeline risks and minimize pipeline damage from excavation and construction.
Edwards said the goal is to help local governments evaluate the risks associated with developments near pipelines
and make more informed decisions as they set zoning rules

Oil & Gas Journal | Dec. 27, 2010

12/22/10 10:40 AM


and issue building permits.
Santa noted some officials do not recognize that placing
both sewer and water lines near gas lines can increase thirdparty excavation risks.
AGA’s Sames said the goal was not to increase regulations
but rather to emphasize to local governments the importance of education about building along pipeline routes.

Integrity management
She said federal lawmakers and DOT, through its US Pipeline and Hazardous Materials Safety Administration, have
been working for years to address integrity management

(IM) issues.
Witnesses testifying during 2010 congressional hearings to reauthorize the federal pipeline safety act noted a
2006 law imposed IM requirements on LDCs after a 2002
law placed IM requirements on interstate oil and gas lines,
Sames told OGJ.
Lawmakers pushed reauthorization of the pipeline safety
act into 2011 while Congress focused on the Macondo deepwater well accident and subsequent crude oil spill, Sames
added.
Pipeline integrity involves more than age, she emphasized. Factors can include whether the pipe is plastic or steel
(and, if it’s steel, whether it is coated), if it is cathodically
protected, if it’s in dry or wet soil, and whether there is a
nearby power line, she said.
In-line inspections are improving, she said. “They can be
used on more sizes of pipe and over a broader range. Some
pigs can even go through tight turns.”
Black said pipeline safety advocates recognize that pipeline integrity involves more than the age of the pipeline.
“There are questions about how the pipeline was constructed and laid, particularly the specific techniques and
practices of the time, and how it has been maintained,” he
told OGJ.
Corrosion is a key integrity issue for oil pipelines, Black
said.
“Internal corrosion is a major cause of pipeline failures,
most of which are not as dramatic as the accidents which
capture the public’s attention,” Black said.

Sharing experiences
US corrosion-related oil pipeline failures dropped 74% from
2001 to 2008, partly due to IM rules DOT imposed in 2001,
Black said. Oil pipeline operators try to continuously improve operations through an American Petroleum InstituteAOPL best-operating practices team where they share experiences with problems and compare operations with their
peers, he said.

While requirements exist nationwide for developers to
call a central pipeline information center before they begin
to excavate, the 811 system is not yet in place everywhere,
officials of the three associations indicated.

Oil & Gas Journal | Dec. 27, 2010

101227ogj_17 17

Santa said INGAA suggested the pipeline safety reauthorization bill include federal support for states to adopt programs with minimal exemptions and strong enforcement.
“It’s incumbent on pipelines and PHMSA to remind policymakers that regulation and practices governing pipeline
safety have been in place for a long time,” said Edwards. “It
has encouraged improvement, which has made it relatively
safe over the last 50 years.”
Santa said pipeline safety involves sound engineering,
risk principles, and technology. “It clearly would be judged
to be a prudent investment. There may be issues about how
costs would be recovered, but never about whether they
would.”
He noted 14,000-15,000 miles of interstate gas pipeline
were constructed during the last decade, the bulk of it in
the last 2 years. That compares with 700 miles of new highvoltage electrical transmission, he added.
Sames said DOT and PHMSA moved from regulations
built on prescriptions over specific intervals to risk-based
rules that require operators to continuously identify potential problems and address them.
“This lets companies put resources where they have the
most impact,” she explained. “Where once you might have
been in a desert environment having to inspect for corrosion
every 7 years, now you can redirect your efforts to damage
prevention and education instead.”

She believes DOT has taken steps that helped improve
pipeline safety in the last 10 years using in-line inspections,
hydrostatic tests, direct assessments, and pressure testing.

Assessing corrosion
Sames said direct assessments, developed by the National
Association of Corrosion Engineers, examine opportunities where corrosion could exist and determines what steps
could be taken.
One unfortunate idea to emerge following the San Bruno
accident was the notion that government and industry always should remain separate, she said.
“That’s not always the case, especially with integrity management and excavation notification. Both of these work best
when government and industry work together,” Sames said.
Black said restoring public confidence and securing funding for adequate enforcement are equally important.
“The record for oil pipelines has improved, but we don’t
want any accidents to occur at all,” Black said. “We don’t believe there are any regulatory gaps.”
He pointed out that PHMSA does extensive investigations
and asks questions during its audits.
Santa called pipeline safety a bipartisan issue.
“An accident can occur in a district represented by a
Democrat or a Republican,” Santa said. “Still, the incidents
which happened in 2010 will frame the debate in 2011, although Congress not trying to act immediately has provided
time to look more closely for the best solutions.”

17

12/22/10 10:40 AM


GENERAL INTEREST

Government sues
to recover costs from
Macondo blowout, spill
Nick Snow
Washington Editor

The US Department of Justice and Environmental Protection
Agency jointly sued to recover damages from the Apr. 20
Macondo well accident, which claimed 11 lives, and subsequent crude oil spill into the Gulf of Mexico.
DOJ and EPA filed a civil action in US District Court in
New Orleans naming nine defendants, including the well’s
operator, BP Exploration & Production Inc.; partner Anadarko Exploration & Production LP; offshore drilling contractor
Transocean Holdings LLC; and insurers QBE Underwriting
Ltd./Lloyd’s Syndicate 1036.
The complaint alleges violations of federal safety and operational regulations, including failures to take necessary
precautions to secure the well before the blowout and explosion, use the safest drilling technology to monitor the well’s
condition, maintain continuous surveillance of the well, and
use and maintain equipment and materials necessary to protect personnel, property, natural resources, and the environment, US Atty. Gen. Eric Holder said.
“We intend to prove that these violations caused or contributed to this massive oil spill, and that the defendants
are therefore responsible—under the Oil Pollution Act—for
government removal costs, economic losses, and environmental damages,” he told reporters.
Holder said the federal government also is seeking fines
under the Clean Water Act, which prohibits unauthorized
discharges of oil and similar substances into US waters. “We
allege that the defendants named in this lawsuit were in violation of the act throughout the months that oil was gushing
into the Gulf of Mexico,” he said. “We intend to hold them
fully accountable for their violations.”
He said DOJ launched both civil and criminal probes into
the accident and spill as initial response efforts were under
way, and that lawyers and investigations from the department closely coordinated their efforts with local US attorneys’ offices and states’ attorneys general.

Investigations continue
“While today’s civil action marks a critical step forward, it
is not a final step,” Holder declared. “Both our criminal and
civil investigations are continuing. Our work to ensure that
the American taxpayers are not forced to bear the costs of restoring the gulf area—and its economy—goes on. As I have
said from the beginning, as our investigations continue, we
will not hesitate to take whatever steps are necessary to hold

18

101227ogj_18 18

accountable those responsible for this spill.”
DOJ worked with EPA, the US Coast Guard, the National
Oceanic and Atmospheric Administration, and the US Department of Interior’s Fish and Wildlife Service and Bureau
of Ocean Energy Management, Regulation, and Enforcement
in its investigations for the civil suit, he noted.
In a response, BP said that the lawsuit “is solely a statement of the government’s allegations and does not in any
manner constitute any finding of liability or any judicial
finding that the allegations have merit,” adding, “BP will answer the government’s allegations in a timely manner and
will continue to cooperate with all government investigations and inquiries.”

Court refuses to block
EPA’s GHG regulation
Nick Snow
Washington Editor

A federal appeals court rejected a request by the oil and gas
industry and others to delay the US Environmental Protection Agency’s plans to begin regulating greenhouse gas

emissions on Jan. 2.
The request did not meet “stringent standards required for a stay
pending court review,” the appellate
court for the District of Columbia
circuit ruled on Dec. 10.
The National Petrochemical &
Refiners Association was among
business groups that had filed a motion for a partial stay of EPA’s greenhouse gas regulations.
Charles T. Drevna, NPRA president, said, “Today’s action means
Charles T. Drevna
that EPA’s invasive and misguided
NPRA president
regulations will be imposed on our
nation’s businesses and manufacturers at the beginning of 2011.”
Quentin Riegel, vice-president of litigation and general
counsel at the National Association of Manufacturers, added, “EPA’s agenda places unnecessary burdens on manufacturers, drives up energy costs, and imposes even more
uncertainty on the nation’s job creators. We will continue
our efforts to stop the EPA from pursuing its job-destroying
agenda.”
Environmental organizations were elated. “This is a victory for every American who wants better gas mileage and
cleaner cars,” said David Doniger, policy director at the Natural Resources Defense Council’s climate center.

Oil & Gas Journal | Dec. 27, 2010

12/22/10 10:40 AM


WATCHING GOVERNMENT
Responding to an OGJ inquiry,
EPA said in a Dec. 13 statement that

the court’s ruling confirmed what the
agency “has been saying all along: that
[EPA’s] reasonable actions to address
carbon pollution will unfold in a manageable and sensible way.” EPA added,
“Yet again, the doomsday predictions
of special interest lobbyists have been
proven wrong.”
The groups filed their motion in August to prevent EPA’s implementation
of its June 3 Prevention of Significant
Determination and Title V Greenhouse
Gas Tailoring Rule, which would begin
federal GHG emissions regulation by
targeting refineries, chemical plants,
and other large industries.

FGE-FACTS: Chinese,
India expand
refining capacities
Refineries for national oil companies
(NOCs) in China and India continued
to expand capacities as 2010 closed.
Japanese refiners, on the other hand,
headed into a second round of capacity
reductions.
These are among the conclusions
in a study of Asian refining by FGEFACTS Global Energy, Honolulu.
The study also said up to 5 years
will pass before any new major capacity will be commissioned by Asian refiners, securing crude from the Middle
East is becoming more important for
Asian refiners, and conversion capacity is added far more quickly than primary distillation capacity in the Asia

Pacific.
FGE-FACTS said China will add
about 6 million b/d of new refining capacity from the start of 2010 to yearend 2020. Chinese NOCs’ investment
in refining is not entirely driven by refining economics, and they have the
financial resources and strategic intentions to make their planned refineries
become reality.

Oil & Gas Journal | Dec. 27, 2010

101227ogj_19 19

NICK

SNOW

Washington Editor | Blog at www.ogj.com

Bromwich isn’t done
As the US offshore oil and gas industry tried to adjust to new federal regulations in the wake of the Macondo
well accident and crude oil spill, the
US Bureau of Ocean Energy Management, Regulation, and Enforcement’s
director signaled that more reforms
are ahead.
“While we have already put in
place significant pieces of our comprehensive reform agenda, our work
is far from complete,” Michael R.
Bromwich told the First International
Oil & Gas Law Conference in New
Orleans on Dec. 8.
He said that BOEMRE soon will

move through the standard rulemaking process to implement further
safety measures, including establishing additional requirements for blowout preventers and remotely operated
vehicles. The agency that formerly
was the US Minerals Management
Service also will consider additional
workplace safety rules that will include requirements for independent
third-party verifications of operators’
programs, he indicated.
Bromwich said that since BOEMRE
announced its new rules at the end
of September, “we have heard from
countless companies, trade associations, and members of Congress of
the significant anxiety that currently
exists in the industry that we will
soon change the rules of the permitting process significantly, thereby
creating further uncertainty about
what is required to conduct business
on the OCS.
“This is not the case,” he contin-

ued. “Barring significant, unanticipated revelations from the ongoing
investigations into the root causes of
the [Macondo well] incident, I do not
anticipate further emergency rulemakings.

‘Must keep pace’
“But at the same time, we can no longer accept the view that the appropriate response to a rapidly evolving,
developing, and changing industry
[that] employs increasingly sophisticated technologies is for the regulatory framework and the applicable
rules to remain frozen. Over time, the

regulatory framework and the specific
requirements must keep pace,” Bromwich said.
He said that BOEMRE will continue to analyze information that
becomes available, including findings
and recommendations of the ongoing investigations into the causes of
the Apr. 20 accident and subsequent
spill. It also will implement reforms to
provide stronger worker and environmental protection offshore, he
maintained.
“In developing these reforms, we
will balance the need for regulatory
certainty against the need to act on
new insights and adapt to changing
technology. And, importantly, the
processing of drilling permit applications and proposed drilling plans will
not be delayed while these additional
reforms are developed,” he declared.
Bromwich said that industry
groups sometimes have reflexively opposed new rules in the past.

19

12/22/10 10:40 AM


GENERAL INTEREST
Indian state refiners also have firm plans to expand refining capacities to meet domestic demand growth, said the
study, while Essar Oil, a key Indian private company, will
carry out its Vadinar Phase II expansion for export.
On the other hand, Japanese refiners JX Group, Idemitsu,

and Showa Shell have announced plans to close 600,000 b/d
of refining capacity to meet an ordinance from Japan’s Ministry of Economy, Trade, and Industry promulgated under
the July 2009 law. The ordinance requires refiners to meet
a cracking/crude-distillation-unit capacity ratio of 13% or
higher by March 2014.
TonenGeneral Group (ExxonMobil) and Cosmo Oil’s
strategies to meet the ordinance are key to the country’s industry reorganization, says the FGE-FACTS study. If all refiners follow the METI ordinance, 1.1-1.3 million b/d of refining closures in Japan are likely by 2014.
The study also says that 4-5 years’ breathing space is
in store for Asian refiners, since no new major capacity is
scheduled for commissioning before 2015. As a result, the
refining surplus in Asia will shrink. Refining margins, how-

ever, will drop sharply again as new large complex Middle
Eastern export refineries start to come on line after 2015.

Supply source
Indeed, says the study, securing crude supplies from the
Middle East is becoming increasingly important for Asian
refiners’ profitability and survival. A large mismatch between Asian refiners’ designed crude slates and additional
availability of Middle Eastern crudes, especially after 2015,
is likely, as Middle East export refineries start to come on
line.
Asian refiners may need to compete with each other for
Middle Eastern crudes; some will be forced to use suboptimum crudes. Also, the light, heavy, and sweet-sour crude
differentials will narrow. Conversion capacity is being added
far more quickly than primary distillation capacity among
Asia-Pacific refiners. As a result, light-heavy product and
light-heavy crude differentials will be lower.
A larger surplus in transportation fuels and larger deficit
in fuel oil will create opportunities for trading companies

based in Singapore.

Chevron suspends pipeline use in Nigeria
as ExxonMobil, Shell resume operations
Eric Watkins
Oil Diplomacy Editor

Chevron suspended operations of the Dibi-Abiteye oil pipeline in Nigeria’s Niger Delta in an effort to minimize potential environmental damage while investigating damage
caused to the line after militant attacks on oil flow stations.
The line feeds the 123,000 b/d Escravos oil export stream,
according to loading programs. The Niger Delta Liberation
Force (NDLF), a militant faction in Nigeria’s oil-producing
wetlands region, claimed attacks on three oil flow stations
operated by Chevron and Eni SPA.
“We have suspended production to minimize environmental impact and have informed relevant government
agencies and other stakeholders,” Chevron said. “The breach
is being investigated and we are reviewing our operations.”
The attack on Chevron and Eni coincided with separate
announcements by Royal Dutch Shell PLC and ExxonMobil
Corp. that they also had resumed operations at sites earlier
attacked by militants.
ExxonMobil resumed production of 15,000 b/d of Nigerian Oso condensate that was shut in following a militant raid
on an offshore platform last month (OGJ, Nov. 22, 2010).
“We have restarted 15,000 b/d of condensate from the
Oso field. No firm time for restart of Natural Gas Liquids
(NGL) production is available at this time,” Exxon said of

20

101227ogj_20 20

Oso, which produces 75,000 b/d from eight platforms.
Nigeria’s main militant group, the Movement for the
Emancipation of the Niger Delta (MEND), claimed responsibility for the November attack in which eight Exxon workers
were reported kidnapped and later rescued.
Shell also resumed shipments of oil from a key export
terminal in southern Nigeria after repairing a leak on the
Trans-Niger pipeline which feeds the terminal.
“The force majeure on Bonny Light exports was lifted effective Dec. 14 following the repairs of the supply pipeline
and stabilization of production,” said Shell, which declared
force majeure on Nov. 19.
Earlier this year, the Shell Petroleum Development Co.
(SPDC) of Nigeria-operated Joint Venture raised an alarm
over the recent increase in sabotage attacks on its pipelines
around Bonny in Rivers State.
During Aug. 1-12, SPDC recorded three separate sabotage
incidents on its Cawthorne Channel—Bonny and Alakiri—
Bonny pipelines, where suspected crude thieves drilled
holes or inflicted hacksaw cuts to siphon oil.
“Last year, 98% of the oil spilled from SPDC operations
was caused by sabotage,” said Babs Omotowa , Shell vicepresident for health, safety, and environment and infrastructure and logistics in Africa.
Nigerian militants claim to be fighting against the region’s endemic poverty and pollution which they say is

Oil & Gas Journal | Dec. 27, 2010

12/22/10 10:40 AM


WATCHING THE WORLD
caused by 50 years of oil production.

The militant groups typically blame
the Nigerian National Petroleum Corp.
(NNPC)—and its IOC partners—for
failing to address the region’s problems.

ERIC

WATKINS

Oil Diplomacy Editor | Blog at www.ogj.com

Chevron
claims forged
signatures in
Ecuador lawsuit
Eric Watkins
Oil Diplomacy Editor

Chevron Corp. said litigation against
the firm in an Ecuadorian court should
be terminated because a forensic specialist discovered many forged signatures on the document that initially
authorized the legal action.
“The Ecuadorian authorities cannot continue to ignore the mounting
evidence of fraud in the Lago Agrio
litigation without violating their duties under the Ecuadorian constitution
and international law,” said R. Hewitt
Pate, Chevron vice-president and general counsel.
Forensic document examiner Gus
R. Lesnevich said at least 20 of the
48 signatures were faked on the document that purported to ratify the

2003 complaint and appoint Ecuadorian lawyer Alberto Wray as plaintiffs’
counsel , Chevron said.
Lesnevich compared plaintiffs’ signatures on the legal document with
their signatures from national identification cards. In addition, an electrostatic detection device revealed
the legal document bore indentations
“consistent with someone practicing
the writing of a signature.”
The forensic analysis was filed in
the Provincial Court of Sucumbios
along with a motion calling on Judge
Nicolas Zambrano to declare the lawsuit null and void. Chevron also asked

Oil & Gas Journal | Dec. 27, 2010

101227ogj_21 21

Pipeline diplomacy in Asia
The international oil and gas industry
understands the need for diplomacy,
a skill that is coming to dominate the
matter of constructing and operating
pipelines.
That is certainly the emphasis of a
recent study published by the Seattlebased National Bureau of Asian
Research entitled “Pipeline Politics
in Asia: The Intersection of Demand,
Energy Markets, and Supply Routes.”
“The scramble for resources and
transport has had uniquely important
implications across East Asia and

Eurasia while powerfully influencing regional energy market dynamics
and geopolitical relationships,” said
Mikkal Herberg, one of five authors of
the report.
“At the nexus of these dynamics is
a growing competition to develop a
number of major Asian and Eurasian
oil and gas pipelines to move oil and
gas across the region,” Herberg said,
citing three facts that drive the trend.

Three drivers
The first of these, according to Herberg, involves the fact that an increasing share of Asia’s oil and liquefied
natural gas supplies will have to transit the Indian Ocean, Malacca Strait,
and the South China Sea.
Herberg cited figures from the
International Energy Agency that
indicate Asia’s oil imports passing
through the Malacca Strait could
double over the next 2 decades to 22
million b/d from the current 11 million b/d.
“This has raised new concerns,

particularly for China, over the growing risk of major maritime supply
disruptions, as well as over US control
of these vital sea lanes,” Herberg said,
noting that this concern is “driving
China’s efforts to diversify supply
lines with new overland pipeline
routes.”

Asia’s scramble for oil and gas has
also been triggered by the break-up
of the former Soviet Union, which
Herberg said freed up “enormous
new potential reserves of oil and gas
in Central Asia” as well as “scaled up
production” from Russia, especially
fields in East Siberia.

Zero-sum competition
The rise of China and the country’s
booming oil and gas needs in particular represent the third main drive behind the region’s scramble for supplies,
touching off what Herberg called “a zero-sum competition over energy supplies and transit.”
The essays in this report take up
the broad geopolitics of cross-border
pipeline development, the progress
in development of new oil and gas
pipelines from Russia’s Eastern Siberia
to China and Northeast Asia, and
prospects for Central Asian oil and
gas pipelines to East Asia.
Also included are essays on India’s
gas pipeline dilemmas and challenges,
as well as the implications of new
oil and gas pipelines being built by
China across Myanmar into Southeast
China.
This gives a heads up of what’s in
the pipeline, so to speak.

21

12/22/10 10:40 AM


GENERAL INTEREST
the judge to forward the matter to Ecuador’s Prosecutor General’s Office for criminal investigation.
“We intend to seek full redress against the harm that has
been done in the name of the Ecuadorian plaintiffs and to
hold accountable all of those who have knowingly participated in this unlawful scheme,” said Pate.
In responding to Chevron’s allegation of forgery, Pablo
Fajardo, the lead Ecuadorian lawyer on the case, said most
of the signatories on the lawsuit have no formal education
and have signed via a fingerprint only a handful of documents in their entire lives.
“It should thus not be surprising that any two signatures
a person makes over the course of an entire life would look
different, but it does not suggest fraud as Chevron claims,”
Fajardo said.
Chevron denies allegations it was responsible for environmental and social harms in Ecuador’s Amazon region.
The oil company said it never conducted oil production operations there, and Texaco Petroleum Co. fully remediated
its share of environmental impacts arising from oil production operations before 1992.
After the remediation was certified by all responsible
agencies of the Ecuadorian government, Texaco received a
complete release from Ecuador’s national, provincial, and
municipal governments before Chevron acquired Texaco in
2001, Chevron said. “All legitimate scientific evidence submitted during the litigation in Ecuador proves…remediation
was effective and that the sites it remediated pose no unreasonable risks for human health or the environment,” Chevron said.

Flow rate tops 10,000
b/d at Llanos discovery

A discovery well on the Corcel block in Colombia’s Llanos
basin has tested light oil at the rate of more than 10,000 b/d,
said Petrominerales Ltd., Bogota.
Logs at the Caruto-1 well indicated 47 ft of potential net
oil pay in the Lower Sand formation. The well flowed at
more than 10,000 b/d of light, 32° gravity oil on an initial
7-hr production test with no water on an electric submersible pump at 75% capacity.
Petrominerales, a 65% owned subsidiary of Petrobank
Energy & Resources Ltd., Calgary, turned off the ESP due to
facility and storage limits at the wellsite and has been producing the well on natural flow at 5,600 b/d. Total depth is
13,024 ft measured depth.
Petrominerales said, “We are installing temporary facilities and expect to have the well producing at a controlled
rate of 12,000 bbl of fluid per day within the following

22

101227ogj_22 22

week. Additional facility capacity is expected to be available
in mid-January.”
Meanwhile, the Boa-2 well encountered the Lower Sand
formation 10 ft structurally higher than in Boa-1 and is on
production at an initial oil rate of 600 b/d of oil. Corcel-E2 is
drilled to 13,180 ft MD, and logs are being run.
A third rig is drilling in the area temporarily. The first rig
is moving from Caruto-1 to drill the Cardenal-1 prospect,
and the second rig is drilling the Yatay-1 exploratory well on
the Guatiquia block southwest of Corcel. The third rig is to
move from Corcel-E2 to the Amarillo well pad to drill a new
exploratory prospect, Cobea-1 or Amarillo-2.

Petrominerales will incorporate the Caruto-1 well results
into its geological model and adjust the drilling order as required. Arion remains a firm prospect for either a sidetrack
or redrill.
Meanwhile, the Asarina-1 well on the Llanos basin Rio
Ariari heavy oil block cut 79 ft of potential net pay in several Lower Mirador sands and was cased as a potential oil
producer. An initial testing program targeting four separate
sands began Oct. 30.
The first Mirador test recovered 120 bbl of 10° gravity
heavy oil at a maximum rate of 100 b/d with 85% water cut.
The second Mirador test in a stratigraphically higher sand
recovered 10 b/d of 10° gravity heavy oil at 98% water cut.
The final two tests from two separate Mirador sands recovered water with trace amounts of oil.
The presence of oil in the Asarina well encouraged the
company, which is considering alternatives including horizontal wells to evaluate the optimal completion, testing, and
production techniques for future heavy oil wells.
The next well at Rio Ariari, Mochelo-1, spudded Oct. 29
and reached 5,309 ft measured total depth Nov. 18. Logs
indicate 69 ft of net potential pay in the Mirador formation.
We cased the well and plan to perform a multi-interval test
program. The next well in the program, Borugo-1, is to spud
in early-December.
The nine-well Rio Ariari exploratory drilling program
is designed to target new exploration prospects and playtypes that could result in the identification of multiple large
resource opportunities. Petrominerales expects to run this
program continuously into 2011.

EXPLOR ATION / DEVELOPMENT BRIEFS

Brazil
A Petrobras group said early tests confirmed light oil potential of the western extent of the Tupi-Iracema accumulation

in the deepwater Santos basin off Brazil.
Wireline tests at the Tupi W well, in 2,139 m of water on

Oil & Gas Journal | Dec. 27, 2010

12/22/10 10:40 AM


GENERAL INTEREST
the BM-S-11 block 11 km northwest of the Tupi discovery
well, confirmed 28° gravity oil in presalt reservoirs at the
western extreme of the Tupi Evaluation Plan Area. The reservoir is 90 m thick at this location.
If formation tests scheduled in coming months meet with
success, the group will consider dedicating a floating production, storage, and offloading vessel to the Tupi W area.
The final evaluation of volumes for the Tupi-Iracema area
was being formulated and was to be released at the end of
December.
Petrobras is operator with 65% interest. BG Group has
25%, and Portugal’s Galp Energia has 10%.

Colombia
Alange Energy Corp., Toronto, will appraise and may horizontally drill an unexpected heavy oil accumulation in the
Cretaceous Lower Rumiyaco formation at the Topoyaco-2
exploratory well on the 60,034-acre Topoyaco block in Colombia’s Putumayo basin.
A zone at 7,532-7,624 ft that appears to be the Rumiyaco
tested at 310 b/d of 10.5° gravity oil with 20% basic sediment
and water on an electric submersible pump. Rumiyaco has
48 ft of net pay. TD is 8,700 ft.
The company will drill a new well to the deeper Villeta
and Caballos, the intended targets in Topoyaco-2. Overall,

Topoyaco-2 cut 114 ft of net pay sand and 125 ft of oil-saturated carbonates.
The definitive stratigraphic model will have to be validated by a thorough geological evaluation to encompass correlations with blocks to the south and northeast, Alange Energy said.
The company will start drilling Prospect D, the block’s
most important objective, late in the 2011 first quarter targeting the subthrust.
Topoyaco-1 on Prospect B penetrated the whole sedimentary column of interest, reaching the Saldana formation in
the Paleozoic. Alange Energy, operator with 50% working
interest, plans to run an ESP to start production testing in
the next week. Pacific Rubiales Energy Corp. has the other
50%.

China
The ZJS-02 well in the downthrown block of the 175,000acre Zijinshan gas asset in China’s Ordos basin intersected
68 bcf of gas in place, according to consulting engineers and
in-house estimates, said Camac Energy Inc., Hartsdale, NY.
Camac, which owns 100% of the foreign contract interest in
the block in partnership with PetroChina CBM Co., plans
to drill the ZJS-03 well late in the 2011 first quarter on the
larger upthrown block. The block is in Shanxi Province near
the West-East and Ordos-Beijing gas pipelines.

Oil & Gas Journal | Dec. 27, 2010

101227ogj_23 23

Guinea
Hyperdynamics Corp., Houston, has signed a nonbinding
letter of intent with an undisclosed large independent oil
and gas company to farm out part of its interest in a concession off Guinea, West Africa.
The companies are in a period of exclusive negotiations
that ends Jan. 27, 2011, unless the parties agree otherwise.

New Zealand
Roc Oil Co. Ltd., Sydney, heads a group that plans to bring
the Kaheru prospect on PEP 52181 just off New Zealand’s
North Island to the drilling phase.
The permit covers 42,379 acres in the main Taranaki basin oil and gas discovery fairway. TAG Oil Ltd., Vancouver,
BC, has joined the joint venture with 20% interest in the
permit.
PEP 52181, 8 km offshore, contains Kaheru and numerous leads and has extensive 2D and 3D seismic coverage.
Kaheru is a Miocene-aged prospect on the same thrust belt
play fairway as many significant Taranaki oil and gas fields.
It is just east of Kupe gas-condensate field.

Turkey
Oman Resources Ltd., private UK explorer, is pursuing a
gas-condensate development program on the 49,821 ha
Konya Block 4077 in the Tuz Golu basin of south-central
Turkey.
The Gulhanim-2 well has encountered a previously unidentified but encouraging gas zone at 1,275-90 m and
should reach the Lower Eocene-Upper Paleocene target by
late January 2011. A workover rig was expected to reenter
the Karapinar-1 well.
Construction is to start shortly on a compressed natural
gas bottling plant that will provide an early, commercially
attractive solution to monetize gas produced from the block
until a 12-km pipeline can be installed.
Early interpretation of 14 lines of the 186 line-km of 2D
seismic shot on the southern part of the block are supportive
of further leads in the west and indicate possible structural
closure to the east, said Niche Group PLC, an investor in

Oman Resources.

Vietnam
CGGVeritas has signed a term sheet with Petrovietnam
Technical Services Corp. to create a joint venture to operate
2D and 3D marine seismic vessels, primarily in Vietnamese
waters.
The joint venture will provide seismic data acquisition
services for the oil and gas clients operating locally in Vietnam and the region.

23

12/22/10 10:40 AM


EQUIPMENT | SOFTWARE | LITERATURE
SOFTWARE ADDITION EXPANDS
OIL FIELD MANAGEMENT SUITE
Now available is this firm’s full operations
management suite (OMS)—in conjunction with the launch of the production
manager product—which provides a
comprehensive, integrated data management platform to manage and optimize
the life cycle of oil and gas assets from
acquisition to drilling to production to
divestiture.
With the introduction of production
manager, OMS offers a common environment for master well data management
through an integrated set of five software
products:
Property master—serves as the central OMS solutions to define and manage

all field assets, including wells, facilities,
subfacilities, and equipment.
AFE manager—enables work flows
to handle creation, management, and
tracking of approvals for authorization for
expenditures (AFE).
Well life cycle manager—focuses on

the life cycle of the well for drilling and
completion operations, tracking of well
services, and summarization of field data
for daily reporting.
Production manager—captures field
data, supports construction of graphical
delivery networks, prepares daily-monthly allocations, and generates production
and regulatory reports.
Material transfer manager—implements work flows to track approval and
movement of operational assets and
equipment.
At the core of OMS is a centralized,
relational database known as PetrisWINDS operations data model.
OMS has support for multiple languages, different currencies, and units
of measurements. The full suite is based
on Microsoft SQL-Server and is written
in .NET. The overall architecture of OMS
makes it highly scalable, the firm says.
Source: Petris Technology Inc., 1900 St.
James Pl., Suite 700, Houston, TX 77056.

NEW POROUS PLASTIC POWDER

Newly developed GUR X 192 macropowder is a porous plastic powder suited for
production operations.
The firm says that sintered products
produced with this new material have
excellent porosity and good strength for
use in a variety of filtration applications
for liquids and gases that require higher
flow rates, lower pressure drops, and
increased part strength.
At the heart of this new polyethylene
resin is a patent pending technology.
It enables the material to be shaped
and sintered—180-220o C. (356-428o
F.)—into porous objects with improved
strength and porosity.
Its molecular weight is 600,000 g/
mol as determined by the German
Institute for Standardization (DIN) 1628/
Margolies.
Source: Ticona Engineering Polymers, 8040
Dixie Highway, Florence, KY 41042.

ADVERTISERS INDEX
COMPANY NAME
Elliott

PAGE
2

www.elliott-turbo.com

OGJ Surveys

4

www.PennEnergyResearch.com

PennEnergy Buyer’s Guide

10

www.PennEnergy.com

PennEnergyResearch

13

www.PennEnergyResearch.com

ONE WORLD. ONE SOURCE.

ONE HUNDRED YEARS.
PUBLICATIONS • EVENTS • DIGITAL MEDIA

PennEnergy Directory Data

15

www.PennEnergyResearch.com

PennWell Corporation

24

www.PennEnergyResearch.com

www.pennwell.com
This index is provided as a service. The publisher does
not assume any liability for errors or omission.

24

101227ogj_24 24

Oil & Gas Journal | Dec. 27, 2010

12/20/10 4:40 PM


STATISTICS
IMPORTS OF CRUDE AND PRODUCTS
— Districts 1-4 —
— District 5 —
12-10
12-3
12-10
12-3
2010
2010
2010

2010
––––––––––––––––––––––––— 1,000 b/d

———— Total US ————
12-10
12-3
*12-11
2010
2010
2009
––––––––––––––––––––––––—

Total motor gasoline .............
Mo. gas. blending comp. .....
Distillate...............................
Residual ..............................
Jet fuel-kerosine ..................
Propane-propylene ..............
Other ...................................

865
730
253
281
15
110
–68

853
701

257
436
55
146
96

10
10
10
48
15
–38
114

13
13
0
0
76
–88
80

875
740
263
329
30
72
46

866
714
257
436
131
58
176

967
716
229
330
57
179
155

Total products ......................

2,186

2,544

169

94

2,355

2,638

2,633

Total crude ...........................

6,889

7,740

801

1,313

7,690

9,053

7,772

Total imports ........................

9,075

10,284

970

1,407

10,045

11,691

10,405

*Revised.
Source: US Energy Information Administration
Data available in OGJ Online Research Center.

PURVIN & GERTZ LNG NETBACKS—DEC. 17, 2010
–––––––––––––––––––––––––––– Liquefaction plant ––––––––––––––––––––––––––––––––
Algeria
Malaysia
Nigeria
Austr. NW Shelf
Qatar
Trinidad
–––––––––––––––––––––––––––––––– $/MMbtu ––––––––––––––––––––––––––––––––––––

Receiving
terminal
Barcelona
Everett
Isle of Grain
Lake Charles
Sodegaura
Zeebrugge

8.79
3.57
7.82

1.68
5.83
7.49

6.52
1.44
5.48
–0.23
8.18
5.20

7.88
3.19
7.11
1.44
6.06
6.77

6.42
1.54
5.38
–0.04
7.87
5.10

7.15
1.98
6.09
0.16
7.08

5.79

7.80
3.86
7.14
2.29
5.17
6.84

Additional analysis of market trends is available
through OGJ Online, Oil & Gas Journal’s electronic
information source, at .

OGJ CRACK SPREAD
*12-17-10 *12-18-09 Change Change,
———–—$/bbl ——–—— %
SPOT PRICES
Product value
Brent crude
Crack spread

99.99
91.73
8.26

FUTURES MARKET PRICES
One month
Product value
99.70
Light sweet

crude
88.25
Crack spread
11.46
Six month
Product value
102.61
Light sweet
crude
90.59
Crack spread
12.02

78.53
71.89
6.64

21.46
19.84
1.62

27.3
27.6
24.4

79.40

20.31

25.6

71.77
7.62

16.48
3.84

23.0
50.3

85.37

17.24

20.2

76.70
8.67

13.89
3.35

18.1
38.6

*Average for week ending.
Source: Oil & Gas Journal
Data available in OGJ Online Research Center.

Definitions, see OGJ Apr. 9, 2007, p. 57.

Source: Purvin & Gertz Inc.
Data available in OGJ Online Research Center.

CRUDE AND PRODUCT STOCKS
—–– Motor gasoline —––
Blending
Jet fuel,
————— Fuel oils —————
PropaneCrude oil
Total
comp.1
kerosine
Distillate
Residual
propylene
———————————————————————————— 1,000 bbl —————————————————————————

District
PADD 1 .....................................
PADD 2 .....................................
PADD 3 .....................................
PADD 4 .....................................
PADD 5 .....................................

9,314
92,788
173,369
16,224
54,323

54,285
49,211
73,959
7,091
30,227

43,520
24,942
49,796
1,995
25,288

9,637
7,983
15,258
700
10,185

67,497
28,697
47,572
3,568
13,971

14,027
1,444
19,884
198
4,221

5,770
26,948
27,391
1
1,717
—

Dec. 10, 2010 ..........................
Dec. 3, 2010 .............................
Dec. 11, 20092 ..........................

346,018
355,871
332,387

214,773
213,964
217,213

145,541
144,409
134,199

43,763
45,750
41,013

161,305
160,212
164,363

39,774
40,143
36,474

61,826
63,063
57,441

1

Includes PADD 5. 2Revised.
Source: US Energy Information Administration
Data available in OGJ Online Research Center.

REFINERY REPORT—DEC. 10, 2010
REFINERY
–––––– OPERATIONS ––––––
Gross
Crude oil
inputs
inputs
––––––– 1,000 b/d ––––––––

District

–––––––––––––––––––––––––––– REFINERY OUTPUT –––––––––––––––––––––––––––
Total
motor
Jet fuel,

––––––– Fuel oils ––––––––
Propanegasoline
kerosine
Distillate
Residual
propylene
–––––––––––––––––––––––––––––––– 1,000 b/d –––––––––––––––––––––––––––––––

PADD 1 ..............................................
PADD 2 ..............................................
PADD 3 ..............................................
PADD 4 ..............................................
PADD 5 ..............................................

1,113
3,369
7,789
534
2,682

1,113
3,314
7,539
528
2,480

2,920
2,283
2,283
329

1,530

70
193
695
28
397

407
1,004
2,436
182
517

55
41
249
10
140

44
232
717
1
54
—

Dec. 10, 2010 .....................................
Dec. 3, 2010 .......................................
Dec. 11, 20092 ....................................

15,487
15,392
14,136

14,974
14,903
13,804

9,345
9,338
9,097

1,383
1,402
1,445

4,546
4,494
3,726

495
516
572

1,047
1,088
977

17,594 Operable capacity

1

88.0 utilization rate

2

Includes PADD 5. Revised.
Source: US Energy Information Administration
Data available in OGJ Online Research Center.

Oil & Gas Journal | Dec. 27, 2010

101227ogj_25 25

25

12/21/10 1:47 PM