ogj jan 2015

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International Petroleum News and Technology | www.ogj.com

EDITORIAL

NEWSLETTER

STATISTICS

EDITORS PERSPECTIVE

GENERAL INTEREST

JOURNALLY SPEAKING

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7 NEWSLETTER 14 LETTERS / CALENDAR 16 JOURNALLY SPEAKING 18 EDITORIAL

28 ADVERTISERS INDEX 29 STATISTICS 32 MARKET CONNECTION

Jan. 19, 2015 | Volume 113.1bInternational Petroleum News and Technology | www.ogj.com

GENERAL INTEREST

USD 10

COVERThe 203,000-b/d refnery at Mongstad in western Nor-

way belongs to Mongstad Refning, wholly owned by

Statoil ASA. The refnery mostly refnes production

from the Norwegian continental shelf and its outputs

mainly consist of motor gasoline, diesel, jet fuel,

and other light products. Photo from Statoil.

24 Barclays sees likely downside to North American E&P budgets Paula Dittrick

25 Sharp drop expected in global E&P spending in 2015, study says

25 EPA approves Magellans Corpus Christi splitter project

26 Gazprom Neft reviews progress on refinery modernization efforts Robert Brelsford

27 Kazakhstan advances refinery modernization program

27 EDITORS PERSPECTIVE Study probes link between US dollars value and oil price

20 Nebraska Supreme Court vacates lower courts Keystone XL ruling Nick Snow

Nebraskas Supreme Court vacated a lower courts decision that legislation transferring authority to determine the proposed Keystone XL crude oil pipelines route across the state to the governor from the Public Service Commission was unconstitutional.

21 Moniz: Low crude prices unlikely to change US energy policies Nick Snow

Crude oil prices below $50/bbl could force some producers to reduce capital expenditures if they go on for long, but are not likely to change US energy policies, according to US

Sec. of Energy Ernest G. Moniz.

21 EIA: Continued global oil stock build to keep pressure on oil prices Conglin Xu

22 WATCHING GOVERNMENT Addressing the oil export ban

23 BPC report examines possible options to reform RFS Nick Snow

23 BOEM raises offshore oil spill liability limit to $134 million Nick Snow

150119OGJ_3 3 1/15/15 11:45 AM

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OGJPennWell, Houston offce1455 West Loop South, Suite 400,

Houston, TX 77027Telephone 713.621.9720/Fax 713.963.6285/

Web site www.ogjonline.comEditor Bob Tippee, [email protected] Technology Editor Warren R. True,

[email protected] Editor-News Steven Poruban,

[email protected] Editor-Technology Christopher E. Smith,

[email protected] Editor Tayvis Dunnahoe,

[email protected] Technology Editor Michael T. Slocum,

[email protected] Technology Editor Robert Brelsford,

[email protected] Editor-Economics Conglin Xu,

[email protected] Writer Matt Zborowski,

[email protected] Editor/News Writer Leena Koottungal,

[email protected] Projects Paula Dittrick,

[email protected] Correspondent Alan Petzet,

[email protected] Assistant Vannetta Dibbles,

[email protected]

Editorial Advisory BoardPat Dennler Motiva Enterprises LLC, Port Arthur, Tex.Doug Elliot Bechtel Hydrocarbon Technology

Solutions/IPSI (Advisor), HoustonAndy Flower Independent Consultant,

Caterham, UKMichelle Michot Foss Bureau of Economic Geologys

Center for Energy Economics, The University of Texas (Houston)

Michael Lynch Strategic Energy & Economic Research Inc., Amherst, Mass.

Tom Miesner Pipeline Knowledge & Development, Houston

Ralph Neumann Badger Midstream Energy LPKent F. Perry RPSEA, HoustonIgnacio Quintero Chevron Pipe Line Co., HoustonBill Schlesing KBC Advanced Technologies Inc.,

HoustonJohn A. Sheffeld John M. Campbell & Co.,

Lechlade, UKAndrew J. Slaughter IHS Energy, HoustonJohn Thorogood Drilling Global Consultant LLP,

Insch, ScotlandSteven Tobias Hess Corp., HoustonShree Vikas Conoco Phillips Co., HoustonColin Woodward Woodward International Ltd.,

Durham, UK

Houston AdministrationPublisher Jim Klingele, [email protected]/Group Publishing Director

Paul Westervelt, [email protected]/Custom Publishing Roy Markum,

[email protected]

PennWell, Tulsa offce1421 S. Sheridan Rd., Tulsa, OK 74112 PO Box 1260, Tulsa, OK 74101 Telephone 918.835.3161 / Fax 918.832.9290Senior Art Director Michelle Gourd,

[email protected] Graphic Designer Lena Banuet,

[email protected] Editor Laura Bell, [email protected] Illustrators Mike ReederProduction Director Charlie ColeProduction Manager Shirley Gamboa

Ad Services Manager Zac Nash

WashingtonTel 703.533.1552Washington Editor Nick Snow, [email protected]

OGJ NewsPlease submit press releases via e-mail to:

[email protected]

Subscriber ServiceP.O. Box 2002, Tulsa OK 74101Tel 1.800.633.1656 / 918.831.9423 / Fax 918.831.9482 [email protected] Circulation Manager Tommie Grigg,

[email protected]

PennWell Corporate Headquarters1421 S. Sheridan Rd., Tulsa, OK 74112

P.C. Lauinger, 1900-1988Chairman Frank T. LauingerPresident/Chief Executive Offcer Robert F. BiolchiniChief Financial Offcer/

Senior Vice President Mark C. Wilmoth

Member Audit Bureau of Circulations & American Business Media

Copyright 2015 by PennWell Corporation (Registered in U.S. Patent & Trademark Offce). All rights reserved. Oil & Gas Journal or any part thereof may not be reproduced, stored in a retrieval system, or transcribed in any form or by any means, electronic or mechanical, including photocopying and recording, without the prior written permission of the Editor. Permission, however, is granted for employees of corporations licensed under the Annual Authorization Service offered by the Copyright Clearance Center Inc. (CCC), 222 Rosewood Drive, Danvers, Mass. 01923, or by calling CCCs Customer Relations Department at 978-750-8400 prior to copying. Requests for bulk orders should be addressed to the Editor. Oil & Gas Journal (ISSN 1944-9151) is published 12x per year - monthly the frst Monday of each month in print and other Mondays in digital form by PennWell Corporation, 1421 S. Sheridan Rd., Tulsa, Okla., Box 1260, 74101. Periodicals postage paid at Tulsa, Okla., and at additional mailing offces. Oil & Gas Journal and OGJ are registered trademarks of PennWell Corporation. POSTMASTER: send address changes, letters about subscription service, or subscription orders to P.O. Box 3497, Northbrook, IL 60065, or telephone (800) 633-1656. Change of address notices should be sent promptly with old as well as new address and with ZIP code or postal zone. Allow 30 days for change of address. Oil & Gas Journal is available for electronic retrieval on Oil & Gas Journal Online (www.ogj.com) or the NEXIS Service, Box 933, Dayton, Ohio 45401, (937) 865-6800. SUBSCRIPTION RATES in the US: 1 yr. $89; Latin America and Canada: 1 yr. $94; Russia and republics of the former USSR, 1 yr. 2,200 rubles; all other countries: 1 yr. $129, 1 yr. premium digital $59 worldwide. These rates apply only to individuals holding responsible positions in the petroleum industry. Single copies are $10 each except for 100th Anniversary issue which is $20. Publisher reserves the right to refuse non-qualifed subscriptions. Oil & Gas Journal is available on the Internet at http://www.ogj.com. (Vol. 113, No. 1b) Printed in the US. GST No. 126813153. Publications Mail Agreement Number 602914. Return Undeliverable Canadian Addresses to: P.O. Box 1632, Windsor, ON N9A 7C9.

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US SalesMike Moss, (713) 963-6221, [email protected]. Mark Gates, (713) 963-6237, [email protected]. Stan Terry, (713) 963-6208, [email protected]. Marlene Breedlove, (713) 963-6293, [email protected]. Roy Markum, (713) 963-6220, [email protected].

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150119OGJ_6 6 1/15/15 11:45 AM

NewsletterOGJ

International News for oil and gas professionals

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

Oil & Gas Journal 7

Jan. 19, 2015

GENERAL INTEREST QUICK TA K ES

Suncor cuts capex by $1 billion (Can.), jobs by 1,000Suncor Energy Inc. is cutting $1 billion (Can.) from its 2015

capital spending program and reducing its workforce by 1,000

because of lower oil prices. The company also plans to trim

$600-800 million in operating expenses in the next 2 years.

Suncor said the 1,000 job cuts will be primarily through its

contract workforce, but did not provide specifics on reductions

in Suncor employee positions. The firm also reported a hiring

freeze for roles that are not critical to operations and safety.

Cost reduction targets include deferral of some capital proj-

ects that have not yet been sanctioned, such as MacKay River 2

and the White Rose Extension.

Major construction projects, including Fort Hills in north-

ern Alberta and Hebron in the Atlantic off eastern Canada, will

move forward as planned and are expected to provide strong

returns when they come online in late 2017.

The 2015 Suncor budget from November reached $7.8 bil-

lion (Can.), while the revised spending plan reached $6.8 bil-

lion (Can.).

Despite reduced spending and lower pricing assumptions

in the companys updated guidance for 2015, production guid-

ance remains at 540,000-585,000 boe/d.

Fitch: Regs limit demand response to priceRegulations meant to trim the use of oil products in the US will

distort fuel-market adjustments to falling oil prices by putting

the burden on supply, warns Fitch Ratings, New York.

The credit-rating and research firm cites growing require-

ments for renewable fuels, tighter corporate average fuel economy

standards, and state and federal regulation of greenhouse gases.

The firm notes an Energy Information Administration re-

port that weekly total gasoline consumption at the end of De-

cember rose to about 9.5 million b/d, 3.3% above its 5-year high

and 3.7% above its year-earlier level.

Over time, however, regulations will restrain consumption

regardless of price and raise costs for US refinery products, es-

pecially gasoline.

The limited ability of the US to balance global oil markets

through changes in demand suggests that the oil market will

likely require a more significant adjustment on the supply side

to recover from its recent lows, Fitch Ratings says. This dove-

tails with Fitchs view that the recent drop in oil prices is most-

ly a supply-driven issue that will require a significant supply

response to come back into balance.

Mazrouei: Oil-price slide will not impact UAE economyThe slump in oil prices will have no impact on the economy of

the United Arab Emirates, says the UAEs energy minister.

Suhail Mohamed Faraj Al Mazrouei, speaking Jan. 13 at the

Gulf Intelligence UAE Energy Forum in Abu Dhabi, said, The

UAE is not worried about its national economy due to the de-

cline in the world oil prices, according to news agencies WAM

and UAEinteract. Its economy is strong and based on a policy

through which the government seeks to reduce dependence on

oil year after year. The UAE economy was not affected by previ-

ous instances of decline in oil prices and it will not, thanks to

its economic well-being.

Mazrouei noted that lower oil prices provide an opportu-

nity for investments and for reviewing contracts. He added that

OPEC has no intention of holding an emergency meeting before

its scheduled meeting in June.

The minister also said current oil prices were not sustain-

able and that he expects the world economy to grow at rates

higher than those of today.

OGUK: Major tax changes urgently neededOil & Gas UK said falling oil prices are creating an urgent need

for fundamental changes to the tax regime.

OGUK CEO Malcolm Webb called for abolition of the 30%

supplementary charge on the corporation tax, which was intro-

duced and then increased in direct response to rising oil prices,

most recently in 2011 (OGJ Online, Dec. 3, 2014).

He said abolition would still leave oil and gas producers pay-

ing corporation tax at 30%, a tax rate 50% higher than the rest

of British industry.

We are encouraged to see a growing political and industry

consensus around the now pressing need for more fundamental

and urgent changes to the tax regime, Webb said.

With a significant amount of UK oil and gas production not

even covering costs at $50/bbl, the industry cannot carry the

burden of a tax rate between 60 and 80%, he said.

Webb said the industry is resolutely focused on tackling the

150119OGJ_7 7 1/15/15 2:16 PM

8 Oil & Gas Journal | Jan. 19, 2015

US INDUSTRY SCOREBOARD 1/19

Motor gasoline 9,329 8,840 5.5 8,809 8,274 6.5 Distillate 3,911 3,649 7.2 2,865 3,022 (5.2)Jet fuel 1,568 1,528 2.6 1,527 1,518 0.6 Residual 256 225 13.8 425 215 97.7 Other products 5,132 5,435 (5.6) 5,718 5,193 10.1 TOTAL PRODUCT SUPPLIED 20,196 19,677 2.6 19,344 18,222 6.2

Supply, 1,000 b/d

Crude production 9,129 8,109 12.6 9,132 8,145 12.1 NGL production2 3,125 2,707 15.4 3,125 2,707 15.4 Crude imports 7,328 7,681 (4.6) 6,856 7,961 (13.9)Product imports 2,379 1,591 49.5 2,664 1,422 87.3 Other supply2 3 2,512 1,952 28.7 2,527 1,868 35.3 TOTAL SUPPLY 24,473 22,040 11.0 24,304 22,103 10.0 Net product imports (1,001) (1,943) (707) (2,161)

Refining, 1,000 b/d

Crude runs to stills 16,360 16,051 1.9 16,420 15,300 7.3 Input to crude stills 16,716 16,333 2.3 16,729 15,639 7.0 % utilization 93.8 91.7 93.9 87.2

4 wk. 4 wk. avg. Change, YTD YTD avg. Change,Latest week 1/2 average year ago1 % average1 year ago1 %

Product supplied, 1,000 b/d

Latest Previous Same week Change,Latest week 1/2 week week1 Change year ago1 Change %Stocks, 1,000 bbl

Crude oil 382,393 385,455 (3,062) 357,892 24,501 6.8 Motor gasoline 237,163 229,048 8,115 226,959 10,204 4.5 Distillate 136,926 125,721 11,205 124,973 11,953 9.6 Jet fuelkerosine 37,779 36,990 789 37,421 358 1.0 Residual 33,055 34,541 (1,486) 37,650 (4,595) (12.2)

Stock cover (days)4 Change, % Change, %

Crude 23.4 23.5 (0.4) 22.2 5.4 Motor gasoline 25.4 24.7 2.8 25.7 (1.2)Distillate 35.0 31.0 12.9 34.2 2.3 Propane 55.9 58.5 (4.4) 27.0 107.0

Futures prices5 1/9 Change Change %

Light sweet crude ($/bbl) 48.75 53.42 (4.7) 96.78 (48.03) (49.6)Natural gas, $/MMbtu 2.91 3.04 (0.1) 4.32 (1.41) (32.6)

1Based 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

Jan. 9Jan. 7 Jan. 8 Jan. 12 Jan. 13






WTI CUSHING / BRENT SPOT$/bbl

50.00

49.00

48.00

47.00

46.00

45.00

44.00

43.00

$/bbl

51.00

50.00

49.00

48.00

47.00

46.00

45.00

44.00

NYMEX NATURAL GAS / SPOT GAS - HENRY HUB

ICE GAS OIL / NYMEX HEATING OIL

NYMEX GASOLINE (RBOB)2/ NY SPOT GASOLINE3

ICE BRENT / NYMEX LIGHT SWEET CRUDE

PROPANE - MT. BELVIEU / BUTANE - MT. BELVIEU

/gal

175.00

170.00

165.00

160.00

155.00

150.00

145.00

140.00

/gal

65.00

64.00

63.00

62.00

45.50

45.00

44.50

44.00

/gal

139.00

137.00

135.00

133.00

131.00

129.00

127.00

125.00

3.150

3.050

3.000

2.950

2.900

2.850

2.800

2.750

1Not available 2Reformulated gasoline blendstock for oxygen blending3Nonoxygenated regular unleaded

$/MMbtu

May 14 Jun. 14 Jul. 14Dec. 13 Feb. 14Jan. 14 Mar. 14 Apr. 14 Oct. 14 Dec. 14Nov. 14Aug. 14 Sept. 14

1,400

2,000

1,800

2,200

1,600

300

500

700

100

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

600

300

0

3,570

3,172

399

Note: End of week average countNote: End of week average count

BAKER HUGHES RIG COUNT: US / CANADA

Note: Monthly average count

366

1,750

10/31/1410/31/1411/15/1311/15/13 11/29/1311/29/13 12/13/1312/13/13

1/3/141/3/14

1/10/131/10/13

10/25/1310/25/13 11/8/1311/8/13 11/22/1311/22/13 12/20/1312/20/13

12/27/1312/27/13

10/24/14 11/7/14 11/21/1412/6/13 12/5/14 12/19/14 1/2/15

11/1/13 11/14/14 11/28/14 12/12/14 12/26/14 1/9/15

477

1,754

150119OGJ_8 8 1/15/15 2:16 PM

150119OGJ_9 9 1/15/15 11:45 AM


cost and efficiency challenges it faces to improve the competi-

tiveness of North Sea operations.

The Treasurys promise in last years Autumn Statement of

a simplified tax allowance to encourage new investment must

be delivered by Budget 2015 if it is to have any impact, Webb

said. However, with the continually falling and potentially

sustained low oil price, this is no longer enough.

Newfield Exploration to retain assets in ChinaNewfield Exploration Co., The Woodlands, Tex., has concluded

its marketing process for its China business and now plans to

retain the assets. The business will be reclassified for financial

purposes as continuing operations in fourth-quarter 2014.

The recent and significant pull back in global oil prices cre-

ated headwinds for our China sales process, said Larry Mas-

saro, Newfield executive vice-president and chief financial of-

ficer. Our China oil fields are expected to generate significant

free cash flows over the next several years.

Net liftings from China in the fourth quarter totaled 300,000

bbl of oil. The Pearl facility in the South China Sea is currently

producing oil and development drilling is ongoing. Net capital

investments in China this year are estimated at less than $50

million. Pearl is expected to reach a peak rate midyear.

Although our intent was to monetize the asset, it was not

a sale at any price, Massaro explained. We will remain dis-

ciplined in our capital investments and intend to use the cash

flows from our China business to manage short-term borrow-

ing levels and ensure that we manage our overall debt and li-

quidity positions during a period of weak oil prices.

Newfield has monetized more than $2.6 billion in nonstra-

tegic assets over the last 3 years and has used proceeds to fund

its domestic businesses. The recent sale of the Granite Wash

allowed for the repayment of $600 million in long-term debt

(OGJ Online Sept. 22, 2014). The company in early 2014 closed

on the sale of its business offshore Malaysia for $898 million

(OGJ Online, Feb. 11, 2014).

EXPLORATION & DEVELOPMENT QUICK TAKES

Petrobras confirms light oil potential of Sergipe basinPetroleo Brasileiro SA (Petrobras) has confirmed the continua-

tion of the light oil accumulation in turbidite sandstone in the

Muriu area of the ultradeepwater Sergipe basin.

Well 9-SES-187A reached the total depth of 5,521 m in

2,533 m of water, encountering a 56-m thick reservoir that

presents good permeability and porosity features. Oil was of

38-40 gravity.

The well is being completed, and Petrobras says an injectiv-

ity test will follow to assess the reservoirs productivity. The

well is 88 km offshore the city of Aracaju and 2.8 km from the

discovery well (OGJ Online, Dec. 5, 2012), part of concession

area BM-SEAL-10, Blocks SEAL-M-347 and SEAL-M-424.

The company in August confirmed the presence of 40-m

thick reservoirs with good permeability and porosity condi-

tions in Moita Bonita of BM-SEAL-10 (OGJ Online, Aug. 22,

2014).

The accumulation is part of the Sergipe-Alagoas basin deep-

water exploration project in Petrobras business and manage-

ment plan for 2014-18.

Petrobras, which holds 100% interest in concession BM-

SEAL-10, will proceed with the discovery evaluation plan as ap-

proved by Brazils Petroleum, Natural Gas, and Biofuels Agency.

E.On adds interest in N. Seas Manhattan prospectE.On E&P has acquired 22.5% interest in several licenses on

Blocks 22/13b, 22/14d, 22/18b, and 22/19b covering the Man-

hattan prospect of the central UK North Sea.

The Manhattan prospect includes an exploration well to be

drilled during this years first half. The license is south of the

Huntington field, operated by E.On E&P (OGJ Online, Apr. 15,

2013).

As a committed partner, we will continue to provide our

technical expertise and knowledge of this area to maximize the

chance of a discovery, said Haakon Haaland, E.On E&P execu-

tive vice-president, exploration and business development.

Nexen Energy ULC operates Manhattan with 40.5% inter-

est. GDF Suez holds 25% and Carrizo Oil & Gas Inc., 12%.

Gulfsands Petroleum completes Moroccan gas findGulfsands Petroleum PLC completed its Dardara Southeast 1

well (DRC-1) Rharb Centre Permit in northern Morocco.

Following an initial 3-hr cleanup, the well tested at an av-

erage rate of 7.1 MMcfd through a 3264-in. choke with a stable

wellhead pressure of 1,230 psi with no associated water or sand

production.

Subject to approval with state-owned ONHYM, the compa-

ny plans to tie the DRC-1 well into local systems in the coming

months.

DRILLING & PRODUCTION QUICK TAKES

Second ExxonMobil crude tanker nears serviceThe second of two new US-flagged crude oil tankers belong-

ing to SeaRiver Maritime Inc., the marine unit of ExxonMo-

bil Corp., has been built and will begin transporting oil from

Alaskas North Slope to US West Coast refineries later this year.

The double-hull, 820-ft Eagle Bay tanker can carry 800,000

bbl of oil and is equipped with the latest technology for essen-

tial systems, including main engine components and controls

as well as fuel, lube oil, and electrical systems.

SeaRiver Maritime consulted with independent specialists

to complete an evaluation of the vessels design, adhering to the

same methodology used by the aerospace industry and the US

Department of Defense. The ships main engine and auxiliary

systems will be energy efficient and generate lower air emis-

sions than required by regulatory standards, the company says.

SeaRiver signed a $400-million agreement with Aker Phila-

delphia Shipyard in 2011 to construct the two tankers (OGJ

150119OGJ_10 10 1/15/15 2:16 PM

Oil & Gas Journal | Jan. 19, 2015 11

Online, Sept. 29, 2011). The Liberty Bay was completed in 2014.

They will replace two existing double-hull tankers.

Statoil to extend Norne field production to 2030Originally scheduled to be taken off stream during 2014, Statoil

ASAs Norne field will remain in operation until 2030, the Nor-

wegian company said. Statoil cited regular maintenance, im-

proved recovery, and recent hydrocarbon discoveries for the

fields extended life (OGJ Online, Sept. 16, 2013).

Located 85 km offshore Norway, Norne field was brought on

stream in 1997 and has produced about 700 million boe to date

(OGJ Online, Oct. 3, 1994).

Production flows from 15 subsea templates tied back to a

floating production, storage, and offloading vessel. Natural gas

is piped to Karsto and from there, to Europe.

Statoil says it plans to increase the recovery factor of Norne

to 60% from 56.5%, accessing the estimated 300 million boe of

remaining resources.

Details for the life-extension project including scope, time-

frame, and investment will be announced in 2017.

Statoil operates Norne field, holding 39.1% interest. Partners

Petoro AS and Eni Norge AS hold 54% and 6.9%, respectively.

Statoil lets FSU contract for Mariner fieldStatoil ASA has let a contract to OSM Offshore Aberdeen Ltd.,

a subsidiary of OSM Offshore AS, to operate the Mariner float-

ing storage unit (FSU) in Mariner oil field, within part of Block

9/11a of the UK continental shelf (UKCS).

OSM will be responsible for building supervision in South

Korea, preoperation activities, transit from South Korea to site,

and full management services on site. The contract, which

starts Feb. 1, is long-term with a fixed duration of 5 years, with

additional option periods of 3 and 2 years.

OSM received the contract for Mariners sister vessel Heid-

run FSU in October 2013. The company previously operated

via Rasmussen Maritime Services AS, acquired by OSM in

2003, several flotels on the UKCS from 1980 to the early 2000s.

Statoil in December let an integrated drilling and well ser-

vices contract for Mariner to Schlumberger Oilfield UK PLC

(OGJ Online, Dec. 19, 2014).

Production from the field is expected to start in 2017. Statoil

holds 65.11% interest, JX Nippon Exploration & Production

(UK) Ltd. 28.89%, and Dyas Mariner Ltd. 6%.

PROCESSING QUICK TA K ES

Shell mulls fate of Malaysian refineryShell Refining Co. (FOM) Bhd. (SRC), a holding of Royal Dutch

Shell PLC, is evaluating either the potential divestiture or clo-

sure of its 125,000-b/d Port Dickson, Malaysia, refinery.

Following a structured review of SRCs resilience in a persist-

ing poor-margin environment, the companys board is investi-

gating long-term options which include, but are not limited to,

the potential sale of the refinery or its conversion to a storage

terminal, SRC said in a Jan. 9 filing with Bursa Malaysia.

Until a final option regarding the future of the refinery has

been selected and gained necessary shareholder approval, SRCs

near-term focus remains ensuring safe and reliable operations

at the refining complex, according to the company.

SRCs decision to abandon its Malaysian refining business

stems from a determination by its board in September 2014

that regional refining margins would remain depressed due to

overcapacity in the global refining industry, the company said.

In an effort to improve refining margins at Port Dickson,

SRC last year constructed and commissioned a 6,000-tonne/

day diesel processing plant at the refinery, the company said in

its 2013 annual report (OGJ Online, Sept. 29, 2010).

Known as Project Hijau, the undertaking included installation

of a diesel hydrodesulfurization unit, amine regeneration unit, and

sour water stripper unit, as well as a revamp of an existing sulfur

recovery unit, according to an October 2014 investor presentation.

In addition to increasing diesel production at the refinery,

the new unit equipped the complex to expand its feedstock

options to include less expensive, more-difficult-to-process

crudes, which contributed to an improved average refining

margin in 2013 of $1.90/bbl compared with $1.25/bbl in 2012,

the company said.

QP, Shell cancel plans for Al Karaana petchem plantQatar Petroleum and Royal Dutch Shell PLC have canceled

plans to proceed with development of the proposed Al Karaana

petrochemicals complex in Ras Laffan Industrial City, north of

Qatar (OGJ Online, Dec. 5, 2011).

The companies made the decision to scrap the project af-

ter bids submitted by potential engineering, procurement, and

construction firms showed capital costs for the development

would be too high and commercially unfeasible given the en-

ergy industrys currently weak economic climate, Shell said.

Initiated with a heads of agreement between QP and Shell in

late 2011 following the conclusion of a joint feasibility study by

the two companies, the project was to include: a steam cracker,

with feedstock from natural gas projects in Qatar; a monoethyl-

ene glycol plant with a capacity of up to 1.5 million tonnes/year

that would use Shells OMEGA technology; a 300,000-tpy lin-

ear alpha olefins plant using Shells SHOP process; and a plant

for production of another unidentified olefin derivative.

Production from the complex, which was to be jointly

owned by QP 80% and Shell 20%, was planned to be marketed

primarily into Asia-Pacific.

Gazprom Nefts moves ahead with Moscow refineryRussias JSC Gazprom Neft is moving forward with construc-

tion on the second phase of a biological wastewater treatment

system at its 12.15 million tonne/year refinery in Moscow.

Project documentation for the proposed wastewater treat-

ment installations was approved by Russias federal building

standards and quality-control agency Glavgosekspertiza in De-

cember 2014, Gazprom Neft said.

150119OGJ_11 11 1/15/15 2:16 PM

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150119OGJ_12 12 1/15/15 11:45 AM


The two second-phase biological treatment plants, which

are to be built on a former buffer zone decommissioned in

2012, will have a total capacity of 1,400 cu m/hr across two

zones, with the plants to cover areas of 6,400 sq m and 18,000

sq m, respectively, the company said.

The biological treatment installations will consist of a pro-

cessing chain that includes membrane bioreactor units, two-

stage flotation, carbon filters, dehydration of activated sludge

and oil sludge, and reverse osmosis.

Activated sludge, which contains various microorganisms

that act together as a culture to absorb organic matter, nitrogen,

and other petroleum products and pollutants, will be used in

combination with mechanical filtration through a membrane

bioreactor to remove nearly 100% of industrial effluents from

the refinerys wastewater, Gazprom Neft said.

Once fully commissioned in 2017, the multistage biological

wastewater treatment system will more than halve the refin-

erys current water consumption, allowing 75% of water to be

returned to the plants production cycle.

The new system additionally will improve the quality of

water delivered from the refinery to the local sewage system

to parity to water qualities found in regional fisheries to help

reduce demand on municipal wastewater treatment plants by

threefold, the company said.

These second-phase wastewater treatment plants are to form

part of a single installation with an underground, mechanical

treatment plant completed at the refinery in 2012 as part of the

projects first phase, Gazprom Neft said.

Implementation of the wastewater treatment system, as well

as other emission-reduction projects, comes as part of the com-

panys renovation and modernization program at Moscow over

2013-20, said Arkadly Egizaryan, Gazprom Nefts CEO for the

Moscow refinery (OGJ Online, Dec. 3, 2014). Once completed,

the modernization program at Moscow will increase overall de-

sign capacity of the refinery to 18.15 million tpy (OGJ Online,

May 7, 2013).

TRANSPORTATION QUICK TA K ES

Enbridge to build, operate lateral for StampedeEnbridge Inc., Calgary, reported it will build, own, and oper-

ate a crude oil pipeline in the Gulf of Mexico to connect the

planned Stampede development, operated by Hess Corp., to

an existing third-party pipeline system. The lateral pipeline is

expected to cost $130 million and be operational in 2018, En-

bridge said.

The Stampede development was previously sanctioned by

Hess and its project co-owners in October 2014 (OGJ Online,

Oct. 29, 2014).

The 16-mile, 18-in. Stampede lateral will originate at Green

Canyon Block 468 in 3,500 ft of water about 220 miles south-

west of New Orleans.

Enbridges offshore pipelines transport about 40% of the

natural gas produced in the deepwater gulf and 45% of gas from

the ultradeep water. The companys offshore assets include in-

terests in 11 gas gathering and transmission pipelines and one

crude oil pipeline in four major pipeline corridors offshore Lou-

isiana and Mississippi.

First LNG carrier delivered for PNG LNG projectThe first custom-built LNG carrier for the Papua New Guin-

ea LNG project fleet has been named Papua in a ceremony in

Hudong, China. The vessel was built by Hudong-Zhonghua

Shipping Group and will be operated by Mitsui OSK Lines on

behalf of ExxonMobil Corp. It is the largest vessel of its type

built in China with a capacity for loading 172,000 cu m of LNG.

Papua will be delivered in the next month or so. Along with

three other carriersThe Spirit of Helga, Gigira Laitebo, and

another vessel under construction at Hudongit will be dedi-

cated to ship Papua New Guinea LNG to Asia.

EnLink buys Permian basin crude gathering operationA unit of EnLink Midstream Partners LP has agreed to by

LPC Crude Oil Marketing LLC, which has crude oil gather-

ing, transportation, and marketing operations in the Permian

basin. LPC purchases, transports, and sells about 60,000 b/d.

The acquisition adds crude oil first purchasing and logistics to

EnLinks existing Permian natural gas gathering and process-

ing services.

LPCs assets include 13 pipeline and refinery injection sta-

tions, a fleet of about 43 tractor trailers, six crude oil gather-

ing systems totaling 67 miles of pipeline, and a crude oil first

purchasing operation. EnLink spent roughly $100 million on

the purchase.

The company last year purchased 1,400 miles of Gulf Coast

natural gas pipeline and 11 bcf of working natural gas storage in

Southern Louisiana from Chevron Pipe Line Co. and Chevron

Midstream Pipelines LLC (OGJ Online, Sept. 29, 2014).

API forms midstream department to address issuesThe American Petroleum Institute has formed a midstream de-

partment to address issues related to energy systems and the

transportation of crude oil and natural gas.

In order for Americas oil and gas renaissance to continue,

we need a world-class infrastructure system to deliver that en-

ergy to consumers, API Pres. Jack N. Gerard said on Jan. 13.

Creating a division focused on midstream issues within API

will enable the industry to address critical energy infrastruc-

ture issues, Gerard said.

API said the new department will encompass its policy work

on the transportation of oil and gas by pipelines, rail, ship, and

other methods. The areas were previously split between its up-

stream and downstream departments, API said.

Robin Rorick, who has been APIs marine and security direc-

tor for the last 5 years, will be the new groups director. Plains

All American Pipeline LP Pres. Harry N. Pefanis will chair a

committee of API member companies, which will oversee the

departments work.

150119OGJ_13 13 1/15/15 2:16 PM


2014-2015 EVENT CALENDAR

Annual Offshore

Production Technology

Summit, London, web-

site: http://offshore-

summit.com/

9-10.

Financing in Oil and

Gas North America

Event, Houston,

website: http://

ww.smi-online.

co.uk/2015pfoilgasusa

46.asp 9-10.

Myanmar Oil & Gas

Week, Yangon, website:

http://www.oilgas-

events.com/Confer-

ences 9-12.

IADC Drilling HSE&T

Asia Pacific Confer-

ence & Exhibition,

Kuala Lumpur, website:

http://www.iadc.org/

events/ 11-12.

Annual Gas to Liquids

North America Event,

Houston, website:

http://www.smi-online.

co.uk/2015gtlamericas

33.asp 11-12.

Annual Petcoke Confer-

ence, Orlando, website:

www.petcokes.com

13-14.

SPE E&P Health,

Safety, Security,

and Environmental

Conference-America,

Denver, website: http://

www.spe.org/events/

hsse/2015/ 16-18.

API Spring Committee

on Petroleum Measure-

ment Standards Meet-

ing, Dallas, website:

http://www.api.org/

events-and-training/cal-

endar-of-events/2015/

springcopm 16-20.

SPE Drilling Confer-

ence, London, website:

SPE Drilling Confer-

Nitrogen + Syngas

Conference, Istanbul,

website: http://www.

crugroup.com/events/

nitrogenandsyngas

23-26.

MARCH 2015

SPE Production and

Operations Confer-

ence, Oklahoma City,


spe.org/events/calen-

dar/ 1-5.

Myanmar Oil & Gas

Week, Yangon, website:

http://myanmar-oilgas.

com/Home.aspx

2-6.

Central Asia and

Caspian Oil & Gas Se-

curity Forum, Almaty,


caoilgassecurity.com/

3-4.

AAPEX Global Confer-


http://www.appexlon-

don.com/2014/index.

cfm 3-5.

Subsea Tieback Forum

& Exhibition, New

Orleans, website: http://

www.subseatieback-

forum.com/index.

html#showcase_3 3-5.

SPE Digital Energy

Conference and Exhibi-

tion, The Woodlands,

Texas, website: http://

www.spe.org/events/

dec/2015/ 3-5.

Arctic Region Oil & Gas

Conference, Stavanger,


ar-oilgas.com/ 4-5.

SPE Middle East Oil &

Gas Show and Confer-

ence and Exhibition,

Manama, website:

http://www.meos2015.

com/ 8-11.

www.spe.org/events/

calendar/ 11-13.

ASEG-PESA Interna-

tional Geophysical Con-

ference and Exhibition,

Perth, website: http://

www.conference.aseg.

org.au/ 15-18.

METECH Middle East

Technology Forum,

Dubal, website: http://

www.europetro.com/

en/metech2015 17-18.

Annual Floating LNG

Event, London, website:

http://www.smi-online.

co.uk/2015floatinglng29.

asp 18-19.

IGTC International Gas

Technology Confer-

ence, Dubai, website:

http://www.europetro.

com/en/igtc_2015 19-

20.

Russia & CIS Oil & Gas

Executive Summit,

Dubai, website: http://

www.europetro.com/

en/summit_2015

19-20.

International Polyole-

fins Conference, Hous-

ton, website: www.

spe-stx.org/conference.

php 22-25.

Laurance Reid Gas

Conditioning Confer-

ence, Norman, Okla.,


ou.edu/content/

outreach/engr/lrgcc_

home.html 22-25.

Red Sea Oil & Gas

Summit, Dubai, web-

site: www.redseasum-

mit.com 23-24.

SPE Reservoir Simula-

tion Symposium,

Houston, website:

http://www.spe.org/

events/rss/2015/

23-25.

SPE Middle East Oil &

Gas Conference and

Exhibition, Mumbai,


meos2015.com/ 8-11.

Middle East Oil and

Gas Pipelines Confer-

ence (MEPIPES), Abu

Dhabi, website: http://

www.theenergyex-

change.co.uk/event/

oil-and-gas-pipelines-

middle-east-2014 8-11.

Corrosion UAE Confer-

ence, Abu Dhabi, web-

site: www.theenergy-

exchange.co.uk/event/

corrosion-uae 8-11.

SPE Hydraulic Fractur-

ing Technology Confer-

ence & Exhibition, The

Woodlands, website:

http://www.spe.org/

events/calendar/ 9-11.

International Pipeline

Pigging & Integrity

Management Confer-


Houston, website:

http://www.clarion.org/

ppim/ppim15/Pigging-

and-In-line-Inspection.

php 9-12.

Annual ARC Indus-

try Forum, Orlando,


arcweb.com/events/

arc-industry-forum-

orlando/pages/default.

aspx 9-12.

International Petroleum

Week, London, web-

site: www.energyinst.

org/events/ip-week

10-12.

NAPE Expo, Houston,


napeexpo.com/nape-

shows/winter-nape

11-13.

SPE Indian Oil & Gas

Conference & Exhibi-

tion, Mumbai, website:

http://www.oilcouncil.

com/event/asia-pacific

27-29.

European Unconven-

tional Gas Summit,

Vienna, website: http://

www.theenergyex-

change.co.uk/event/

european-unconven-

tional-gas-summit-2014

27-29.

API/AGA Joint Commit-

tee on Pipeline Welding

Practices, New Orleans,


api.org/events-and-

training/calendar-of-

events/2015/aga 28-29.

FEBRUARY 2015

World LNG Fuels

Conference, Houston,


worldlngfuels.com/

about/ 2-4.

E&P Information &

Data Management

Conference, London,


smi-online.co.uk/

energy/uk/conference/

ep-information-data-

management 3-4.

IADC Health, Safety, &

Environment Confer-

ence & Exhibition,

Houston, website:

http://www.iadc.org/

events/ 3-4.

Topsides Platforms

Hulls Conference &

Exhibition, Galveston,


topsidesevent.com/

index.html#attend_3#

leftcolumn_tabs_0_4

3-5.

SPE Hydraulic Fractur-

ing Technology Confer-

ence, The Woodlands,


www.spe.org/events/

hftc/2015/ 3-5.

Denotes new listing or

a change in previously

published information.

JANUARY 2015

World Future Energy

Summit, Abu Dhabi,


worldfutureenergysum-

mit.com/ 19-22.

Annual Offshore West

Africa Conference and

Exhibition, Lago, web-

site: http://s36.a2zinc.

net/clients/pennwell/

owa2015/Public/Con-

tent.aspx?ID=42455

20-22.

Offshore West Africa


tion, Lagos, website:

http://www.offshore-

westafrica.com/index.

html 20-22.

SPE Middle East

Unconventional

Resources Confer-


Muscat, website: http://

www.spe.org/events/

urme/2015/ 26-28.

Offshore Middle East


tion, Doha, website:

www.offshoremid-

dleeast.com/index.html

26-28.

API Exploration and

Production Winter

Standards Meet-

ing, New Orleans,


api.org/events-and-

training/calendar-of-

events/2015/e-p-winter

26-30.

Asia-Pacific Oil &

Gas Assembly Event,

Singapore, websites:

http://www.ogj.com/

event-listing/all-petro-

leum-events.html &

150119OGJ_14 14 1/15/15 11:45 AM


2014-2015 EVENT CALENDAR


www.spe.org/events/

calendar/ 17-19.

GSA South-Central

Section Meeting, Still-

water, Okla., website:

http://www.geoso-

ciety.org/Sections/

sc/2015mtg/

19-20.

GSA Southeastern Sec-

tion Meeting, Chatta-

nooga, Tenn., website:

http://www.geoso-

ciety.org/Sections/

se/2015mtg/ 19-20.

AFPM Annual Meeting,

San Antonio, website:

http://www.tsnn.com/

events/american-fuel-

and-petrochemical-

manufacturers-afpm-

formerly-national-pet-

rochemical-refiners-a

22-24.

GSA Northeastern

Meeting, Bretton

Woods, N.H., website:

http://www.geoso-

ciety.org/Sections/

ne/2015mtg/ 23-25.

Arctic Technology Con-

ference, Copenhagen,


arctictechnologyconfer-

ence.org/ 23-25.

ASME Joint Rail

Conference, San

Francisco, website:

http://calendar.asme.

org/EventDetail.

cfm?EventID=28060

23-26.

SPE Coiled Tubing

and Well Intervention

Conference and Exhibi-

tion, The Woodlands,


www.spe.org/events/

ctwi/2015/ 24-25.

World Heavy Oil

Congress, Edmonton,

Alta., website: http://

petroleumshow.com/

event/world-heavy-oil-

congress-2015/ 24-26.

Georgian International

Oil, Gas, Infrastructure

& Energy Confer-

ence (GIOGIE), Tbilisi,


giogie.com/Home.aspx

25-26.

China International

Petroleum & Petro-

chemical Technology

and Equipment Exhibi-

tion (CIPPE), Beijing,


cippe.com.cn/2015/en/

26-28.

AFPM International

Petrochemical Confer-

ence, San Antonio,

(202) 457-0480, (202)

457-0486 (fax), e-mail:

meetings@afpm.

org, website: www.

afpm.org/Conferences

29-31.

SPE Progressing Cavity

Pumps Conference,

Calgary, Alta., website:

http://www.spe.org/

events/pcp/2015/ Mar.

31-April 1.

APRIL 2015

GPA Annual Conven-

tion, San Antonio, web-

site: www.gpaglobal.

org/calendar/events

12-15.

SPE/IADC Managed

Pressure Drilling

and Underbalanced

Operation Conference

& Exhibition, Dubai,



dar/ 13-14.

AFPM Security Confer-

ence, New Orleans,


afpm.org/conferences/

13-15.

SPE North Africa Tech-

nical Conference &

Exhibition, Cairo, web-

site: http://www.spe.

org/events/natc/2015/

13-15.

SPE International

Symposium on Oilfield

Chemistry, The Wood-

lands, Texas, website:

http://www.spe.org/

events/ocs/2015/

13-15.

API Spring Refin-

ing and Equipment

Standards Meeting,

Seattle, website: http://

www.api.org/events-

and-training/calendar-

of-events/2015/spring-

refining 13-15.

SPE/CHOA Slugging

it Out Conference,

Calgary, Alta., website:

www.spe.org/events.

calendar/ 14.

API Spring Operating

Practices Symposium,

Seattle, website: http://

www.api.org/events-

and-training/calendar-

of-events?page=2 14.

Oiltech Atyrau Confer-

ence, Atyrau, website:

http://www.oiltech-

atyrau.com/ 14-15.

Ocean Business Con-

ference, Southampton,

website: www.ocean-

business.com 14-16.

North Caspian Regional,

Atyrau Oil and Gas Exhi-

bition, Atyrau, website:

http://www.atyrauoilgas.

com/ 14-16.

International Sympo-

sium on Fluid Flow

Measurement, Arling-

ton, website: http://

www.isffm.org/ 14-17.

NAPE East Regional

Expo, Pittsburgh,


napeexpo.com/nape-

shows/nape-east

15-17.

ASME India Oil & Gas

Conference, Delhi,

website: https://www.

asmeconferences.org/

ioGPC2015/ 17-18.

Annual Middle East

Petroleum & Gas Con-

ference, Abu Dhabi,


cconnection.org/event-

sListing.php 19-21.

IHS Energy CER-

AWEEK, Houston, web-

site: http://ceraweek.

com/2014/ 20-24.

ERTC Energy Efficiency

Conference, Brussels,

website: http://events.

gtforum.com/energy-

efficiency 21.

ERTC Plant Mainte-

nance & Shutdowns

Conference, Brussels,

website: http://events.

gtforum.com/plant-

maintenance 21.

Alliance Expo and An-

nual Meeting, Wichita

Falls, website: http://

texasalliance.org/event/

alliance-expo-annual-

meeting/ 21-22.

SPE Bergen seminar,

Bergen website: www.


dar 22.

Base Oil & Lubes Mid-

dle East Conference,

Abu Dhabi, website:

http://www.cconnec-

tion.org/eventsListing.

php 22-23.

Turkish International

Oil & Gas Conference

(TUROGE), Ankara,


oilgas-events.com/

Conferences 22-23.

PESA Annual Meeting,

Greensboro, Geor-

gia, website: http://

ceraweek.com/2014/

22-25.

AIChE Spring Meeting

& Global Congress on

Process Safety, Austin,


aiche.org/conferences/

aiche-spring-meeting-

and-global-congress-

on-process-safety/2015

26-30.

SPE Western Regional

Meeting, Anaheim,



dar/ 27-29.

MAY 2015

Offshore Technology

Conference (OTC),

Houston, website:

http://2015.otcnet.org/

4-7.

International Down-

stream Technology &

Strategy Conference,

Istanbul, website: http://

www.europetro.com/en/

idtc_2015 12-13.

AFPM National Oc-

cupational & Process

Safety Conference

and Exhibition, Austin,


afpm.org/conferences/

12-13.

Iraq Future Energy Fo-

rum, Amman, website:

http://www.theenergy-

exchange.co.uk/event/

iraq-future-energy-4th-

edition 12-14.

International School of

Hydrocarbon Measure-

ments, Oklahoma City,


ishm.info/ 12-14.

Uzbekistan Interna-

tional Oil & Gas Confer-

ence (OGU), Tashkent,


oilgas-events.com/

Conferences 13-14.

BBTC International

Bottom of the Barrel

Technology Confer-

ence, Istanbul, website:

http://www.europetro.

com/en/bbtc_2015

14-15.

APPEA Conference &

Exhibition, Melbourne,

website: www.ap-

peaconference.com.au

17-20.

Turkmenistan Gas Con-

gress, Turkmenbashi,

Uzbekistan Interna-

tional Oil & Gas Confer-

ence (OGU), Tashkent,


oilgas-events.com/

Conferences 19-20.

PNEC Conferences,

Houston, website:

http://www.pipeline-

week.com/index.html

19-21.

AFPM Reliability &

Maintenance Confer-


Austin, website: http://

www.afpm.org/confer-

ences/ 19-22.

FPSO Vessel Confer-


http://www.wplgroup.

com/aci/conferences/

eu-mfp6.asp 20-21.

SPE Produced Water

Handling & Manage-

ment Symposium,

Galveston, Texas,



dar/ 20-21.

SPE Latin American

and Caribbean Artificial

Lift Conference, Sal-

vador, website: http://

www.spe.org/events

27-28.

150119OGJ_15 15 1/15/15 11:45 AM

JOURNALLY SPEAKING


Mexicos energy reform has launched an ambitious process to end the long-standing state oil monopo-ly, holding the promise to increase oil production and bolster the overall economy. It also presents tremendous opportunities for private energy com-panies with expertise in mature fields, unconven-tional development, and offshore drilling.

However, since August 2014 when the Mexi-can Congress approved secondary legislation to permit private investment in the countrys oil and gas sector, crude prices have plunged more than 50%, dimmingat least for nowthe appeal of investing in Mexicos resources. With companies cash flow and capital spending to be squeezed in 2015, investment opportunitiesparticularly in explorationwill be inevitably reconsidered with greater scrutiny.

The new market paradigm will put pressure on the Mexican government to make it more at-tractive for private companies to invest, especially in the first round of contracts up for grabs. Cost-recovery considerations, involving fully competi-tive terms and conditions, are of particular impor-tance given the current low oil-price environment.

Shallow-water circumstances

On Dec. 11, 2014, the Mexican National Hydrocar-bons Commission (CNH) released the bidding and contract terms for the first 14 shallow-water blocks in the Gulf of Mexico, kicking off the long-awaited first phase of the so-called Round One.

These shallow-water areas are very mature. Most of them lie in the prolific Cuenca Salina geological province and contain light crude oil resources with low production costs. The costs could be below $20/bbl, according to a recent re-port of Credit Suisse.

Government officials believe that the relatively low production costs for the first shallow-water blocks should provide enough upside for would-be investors. However, as state oil firm Petroleos Mexicanos has already discovered and developed the most attractive shallow-water fieldsinclud-ing giant Cantarell fieldthe potential of dis-covering large and low-cost oil and gas fields in Mexicos shallow-water regions is low.

While significant exploration potential re-

mains, it is likely that most discoveries will be smaller fields with relatively high costs, said Pedro van Meurs, president of Van Meurs Corp. This disadvantage, combined with low oil prices over a prolonged period, could put off oil majors, which tend to seek the biggest and most profit-able projects.

Fiscal terms

Along with the announcement of preliminary con-tracts for the shallow-water exploration blocks, details concerning fiscal terms have also been re-leased.

These production-sharing contracts (PSC) will operate a return-based adjustment mechanism. Companies will receive relatively high profit split until a 15% internal rate of return (IRR) is reached. Between 15% and 30% IRR, the profit split reduc-es linearly. After 30% IRR is reached, profit split is set to 20% of the original bid of the contractors profit split, making it hard to earn a higher return.

Using its Global Economic Model, energy re-search and consultancy Wood Mackenzie demon-strates the economics of Sinan field under the pro-posed terms, showing company IRR at different oil prices and contractors profit split bids.

Overall, we believe the terms manage to com-bine a reasonable amount of royalties while still remaining profitable in the case of negative price movesa key consideration. However, at low oil prices and low initial profit share, royalties may impair the ability of companies to recoup their costs, WoodMac said.

WoodMac pointed out that in these times of reduced cash flow, contractors may be concerned by the relatively low cost recovery ceiling and the effect of the IRR-based profit share on projects in the final years of the contracts.

According to another analysis conducted by van Meurs, the proposed fiscal system is too tough for small fields, such as a 20-million bbl field in Mexicos shallow water. Because of the very unfa-vorable terms under so-called upside conditions, and the unattractive exploration economics, the terms proposed in the Model PSC are not competi-tive for the shallow water opportunities offered in the first bid round, he said.

CONGLIN XU

Senior Editor-Economics

Mexicos evolving fiscal terms

150119OGJ_16 16 1/15/15 11:45 AM

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EDITORIAL


Americans turn loopy over gasoline. They throw tantrums when gasoline prices climb enough to hurt. If federal mandates accurately express their thinking about the fuel, theyd rather burn food. And when gasoline prices sink they become inco-herent.

Politicians brazenly exploit widespread suspi-cion that conspiracy explains the high points in gasoline price cycles. The late Sen. Daniel Patrick Moynihan (D-NY) described the approach well during a 1996 Senate debate on gasoline prices, which then were increasing. It is in the oldest American political tradition that when anything happens, you investigate the oil companies, he said (OGJ, May 13, 1996, p. 36).

The many witch hunts inaugurated by Congress over the years have uncovered no conspiracy, of course. Yet the witch hunters wont be appeased. Some of them even complain when gasoline prices fall. In October 2012, then-Rep. Edward J. Markey (D-Mass.) requested a Federal Trade Commission investigation into the sinister question why gaso-line prices hadnt fallen as fast as crude prices. In a letter to former FTC Chairman Jon Leibowitz, he expressed concern that gasoline prices could be behaving abnormally due to price gouging or ma-nipulation.

Markets set pricesAs long as exploiting gullibility promises political benefits, Markey and politicians like him wont ac-knowledge the observable truth that markets set gasoline prices. Their charlatanism is merely irri-tating when prices of crude and oil products are ris-ing. When prices are falling and oil-industry work-ers are losing jobs, as they are now, apologies are in order.

Muddled thinking about gasoline has had consequences in Washington, DC, beyond the occasional investigation destined to find noth-ing. For example, it led Congress to commit grain to the production of more fuel ethanol than the market can absorb and to require sales in gaso-line of far more ethanol made from cellulose than can be supplied. The unattainable renewable fuel standard represents a triumph of political oppor-tunism and a woeful product of ignorance, much

of it voluntary, about the gasoline market.Sensitivity about gasoline prices remains a

handy lever of persuasion in energy politics. In De-cember, President Barack Obama made it a reason not to approve the border crossing of the Keystone XL pipeline. There is very little impactnominal impacton US gas prices, what the average Ameri-can consumer cares about, the president said in a press conference. And Markey, ever the watchdog, has used concern about the supposed effect on gas-oline prices as a reason to oppose ending the ban on crude exports. Exporting American oil might be good for big oils bottom line, he said last Oc-tober, but it would harm American families and businesses and erode our progress towards energy independence that enhances our national security.

These views appeal to intuition but overlook much. The Keystone XL pipeline would move bi-tumen the cheapest way possible to refineries that value it most. Exports would allow US crude to compete internationally alongside US gasoline, the price of which follows global markers, with the probable effect of suppressing prices of crudeand therefore gasolineoverall. Both moves would en-hance market efficiency, which always helps con-sumers of gasoline and other oil products.

Most interesting will be what happens to worry over gasoline prices as talk grows about raising fed-eral taxation of the fuel. That discussion has begun. Politicians from both major political parties have made claims, via elevation of the federal gasoline excise, to various shares of the money consumers save as gasoline prices plunge. Their proposals raise many questions, all meriting debate.

Taxes and pricesFundamentally, though, no one should forget that to consumers a tax hike is the same as a price in-crease. Opponents of Keystone XL and crude ex-ports who hinge arguments to questionable claims about gasoline prices logically should oppose tax increases, too. And a public inclined toward out-rage over gasoline prices should find the mere men-tion of higher taxes scandalous.

But this is wishful thinking. Concerning gas-oline, too many Americans and their politicians would rather be angry than right.

Loopy over gasoline

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GENERAL INTEREST

Nebraskas Supreme Court vacated a lower courts decision that legislation transferring authority to determine the pro-posed Keystone XL crude oil pipelines route across the state to the governor from the Public Service Commission was unconstitutional.

Four of the courts seven justices backed Lancaster County District Judge Stephanie F. Stacys ruling that LB 1611, which gave then-Gov. Dave Heineman (R) the route approval author-ity in 2012, was unconstitutional (OGJ Online, Feb. 20, 2014). But the states constitution requires a five-vote supermajority for the court to find an enacted law unconstitutional.

No member of this court opines that the law is consti-tutional, the states high court said in its Jan. 9 decision. But the four judges who have determined that LB 1161 is unconstitutional, while a majority, are not a supermajority as required under the Nebraska Constitution.... Accordingly, we vacate the district courts judgment.

Supporters and opponents of TransCanada Corp.s pro-posed 1,179-mile pipeline from Hardisty, Alta., to Steele City, Neb., agreed that the Nebraska Supreme Courts action puts pressure back on US President Barack Obama to decide whether giving Keystone XL a cross-border permit is in the US national interest.

We welcome todays decision by the Nebraska Supreme Court which has thrown out a lower court rulingand the governors approval of our pipeline route remains valid, TransCanada Chief Executive Russ Girling said on Jan 9. This decision also means the approved route is valid and removes another delay in making a decision on our Keystone XL presidential permit application. Now, the federal review of our application can pick up where it left off.

No more excusesPresident Obama has no more excuses left to delay or deny the Keystone XL pipeline, API President Jack N. Gerard said. More stable domestic and Canadian oil will enhance our nations national and economic security. The project has strong bipartisan support on Capitol Hill and a majority of Americans want to see it approved.

Now that the Nebraska Supreme Court has vacated the

lower courts ruling and allowed LB 1161 to stand, its time to move forward with the project, Consumer Energy Alli-ance Executive Vice-President Michael Whatley said. The Obama administration should work quickly to approve what will clearly be the safest pipeline in history and help bring jobs and economic opportunity to both the Cornhusker State and the nation.

Opponents were dissatisfied with the outcome because it hinged on a legal technicality. Todays ruling is an affront to citizens land rights and democratic self-determination. It continues a trend of everyday Americans being barred ac-cess to our courts, said Lusa Abbott Galvao, Friends of the Earths Climate and Energy associate.

It does not change the fact that Keystone XL is not in our national interest.

This ruling clears the way for President Obama to deter-mine whether the dirty tar sands pipeline is in the national interest, said Danielle Droitsch, the Natural Resources De-fense Councils Canada project director. The ruling doesnt make it right for Congress to act as a permitting agency, usurp presidential authority, or short-circuit the presidents obligation to decide whether the pipeline is good for the country. Its not. It needs to be denied.

Congress increases pressureMeanwhile, four days into its first session, the Republican-controlled 114th Congress continued its own pressure on Obama president as the House passed Rep. Kevin Cramers (R-ND) bill approving Keystone XL by 266 to 153 votes.

The election is over. There has been broad bipartisan support for this project from day one, Energy and Com-merce Committee Chairman Fred Upton (R-Mich.) said fol-lowing the vote. With the Nebraska roadblock cleared, the president has no excuse left to delay this project. Its time to build, once and for all.

The Senate Energy and Natural Resources Committee ap-proved Chairwoman Lisa Murkowskis (R-Alas.) bill with identical language a day earlier and sent it to the full Senate for consideration and a possible vote next week (OGJ On-line, Jan. 8, 2015).

Nick Snow

Washington Editor

Nebraska Supreme Court vacates lower courts Keystone XL ruling

150119OGJ_20 20 1/15/15 11:45 AM


Literally everything that has happened during the Obama administrationlegislation, regulations, and extra-curricular activitieshappened while Keystone XLs permit application was pending, Murkowski said in a Jan. 9 floor speech. At more than 2,300 days and counting, it is abun-dantly clear that the president is not going to make a deci-sionand that Congress needs to make it instead.

Moniz: Low crude prices unlikely to change US energy policiesNick Snow

Washington Editor

Crude oil prices below $50/bbl could force some producers to reduce capital expenditures if they go on for long, but are not likely to change US energy policies, according to US Sec. of Energy Ernest G. Moniz.

We will still see increases in our oil production in 2015. It has been tempered, but should reach 9.3 million b/d, Moniz said during a Jan. 7 discussion at the Woodrow Wil-son International Center for Scholars. If low prices persist for a long time, reductions in capex will appear down the road.

The Obama administration is trying to put together a comprehensive picture of what low oil prices mean beyond consumers driving more and buying new motor vehicles, Moniz said.

One of the obvious global issues is whether this can help get Europes rather sluggish economy going, he said. There also obviously are several countries which depend heavily on oil revenue, some of which are US friends. We are look-ing at options.

As the US continues to celebrate its dramatic domes-tic crude production growth from tight shale formations, it should not lose sight that it still imports 7.5 million b/d, Moniz warned.

We continue to focus on reducing that dependence in a variety of ways, including vehicle research and alternative fuels, most notably next generation biofuels, he said. Costs are not there yet, but theyre coming down fast. We continue to advance electrification of vehicles. The high-level message is that we continue to reduce our import dependence as we produce more oil domestically.

Prices tend to rebound

Other speakers agreed. In 1998, when oil was $10/bbl, the price went back up within a year and a half, said David L. Goldwyn, president of Goldwyn Global Strategies LLC and a

former coordinator for international energy affairs at the US Department of State.

He recommended that the US ensure US producers can participate more fully for a longer time in global markets by reducing LNG and crude export restrictions, and pursuing policies that address climate change as well as energy secu-rity.

Nothing cures low oil prices like oil prices, observed Edward L. Morse, who heads Global Commodities Research at Citigroup. Markets left on their own are likely to see in-creased cyclicality as projects are cancelled.

Trends that emerged in 2014, such as weaker-than-ex-pected economic growth outside the US, are continuing, he said. Sour crude producers could face a more disruptive mar-ket in the coming weeks with significant challenges from US Gulf Coast refiners, Morse suggested. Markets always bal-ance, but I think the year will be challenging because of the unintended consequences of low oil prices, he said.

Europe also needs to make certain it pursues long-term goals despite short-term lower crude prices, noted Ana de Palacio, a former Spanish foreign affairs minister and found-er of Palacio y Asociados.

She said Europes main challenges are to be more realistic and not rely so heavily on renewable energy, to address in-frastructure deficiencies, to balance public and private par-ticipation, and to develop better national policies.

EIA: Continued global oil stock build to keep pressure on oil pricesConglin Xu

Senior Editor-Economics

In its most recent monthly Short-Term Energy Outlook (STEO), the US Energy Information Administration report-ed it expects global oil inventories to continue to build in 2015, keeping downward pressure on oil prices. EIAs Janu-ary STEO, which is the first to include estimates for 2016, forecasts Brent crude oil prices will average $58/bbl in 2015, $11/bbl lower than projected last month, and $75/bbl in 2016. The annual average for West Texas Intermediate is ex-pected to be $3-4/bbl below Brent, EIA said.

Based on current market balances, EIA expects down-ward price pressures to be concentrated in the first half of 2015 when global inventory builds are expected to be par-ticularly strong. EIA projects that Brent prices will reach a 2015 monthly average low of $49/bbl in January and Febru-ary, and then increase through the remainder of the year to average $67/bbl during the fourth quarter.

150119OGJ_21 21 1/15/15 11:45 AM


WATCHING GOVERNMENT

NICK SNOWWashington Editor | Blog at www.ogj.com

The 114th Congresss first energy

policy priorityafter approving the

proposed Keystone XL crude oil pipe-

lineshould be repealing the ban on

US crude oil exports, the American

Petroleum Institute believes. It also

acknowledges that reaching this goal

wont be easy.

The main problem is that two major

crude supply interruptions in the 1970s

(and motorists lining up to buy gasoline

at higher prices as a result) made a very

strong impression on voters. They dont

want to see it happen again, even if

many of them didnt experience it direct-

ly but heard about it from their parents

and grandparents.

Our biggest challenge is convincing

people that this is not 1978, American

Petroleum Institute Chief Economist

John C. Felmy told reporters on Jan.

13. Its an economicnot a national

securityissue now.

Proponents and opponents agree

that possibly higher retail gasoline

prices are the single biggest obstacle

to winning broad support for remov-

ing a US crude export ban, which

has been in place since 1975. Sales

to Canada and from the Trans-Alaska

Pipeline System have been allowed

since.

The US crude oil supply outlook

changed dramatically when hydraulic

fracturing and horizontal drilling made

it possible to recover crude from tight

shale formations. Production, not im-

ports, has grown in recent years.

There isnt a single credible econo-

mist who believes allowing more crude

exports would raise prices at the pump

now, said Kyle Isakower, APIs vice-

president for regulatory and economic

policy, who also participated in the

luncheon briefing.

It would reduce estimated consumer

costs $5.8 billion/year from 2015 to

2035; result in another $15-70 billion

of investment in US crude E&P from

2015 to 2020; and increase US crude

production by 110,000-500,000/b/d,

according to a study ICF International

and EnSys Energy did for API.

Trimming deficit, adding jobsThe study also said that lifting crude

export restrictions could reduce the

US trade deficit $22 billion by 2020.

Every $1 billion improvement in the

deficit translates into 5,000 jobs, Felmy

observed.

API Upstream Operations Director

Erik Milito said no projections show

the country moving back into domestic

supply scarcity any time soon. Technol-

ogy continues to move the industry, he

said. The fracing we see now is differ-

ent from 5 years ago. Companies can go

back to wells theyve already drilled and

increase recovery rates from 20% to

around 35%.

The three API officials conceded

that individual refiners and chemical

companies could face higher supply

prices because of their unique situ-

ations. Federal lawmakers also have

been reluctant to propose repealing

the ban, Milito said. Were pretty con-

fident congressional leaders will take a

closer look once we get the story out,

he added.

Addressing the oil export ban

Global oil market

EIA expects global oil consumption to grow by 1 million b/d in both 2015 and 2016, following a 900,000 b/d growth in 2014.

Consumption by members outside the Organization of Economic Coop-eration and Development increased by 1.2 million b/d in 2014, and is pro-jected to rise by 900,000 b/d in 2015 and 1.1 million b/d in 2016. Russias consumption will decline 200,000 b/d in 2015 because of its economic down-turn. China is the leading contribu-tor to projected global consumption growth, with consumption expected to increase by an annual average of 300,000 b/d over the next 2 years.

OECD consumption, which fell by 300,000 b/d in 2014, is expected to rise by 100,000 b/d in 2015 and remain rel-atively flat in 2016. Japan and Europe accounted for almost the entire decline in 2014 and are expected to continue to decline over the next 2 years. The US is the leading contributor to projected OECD consumption growth, with its consumption increasing by 300,000 b/d in 2015 and 100,000 b/d in 2016.

EIA expects supply growth from countries outside of the Organization of Petroleum Exporting Countries to slow over the next 2 tears, mostly because of lower projected oil prices. Non-OPEC production is expected to increase by 700,000 b/d in 2015 and by 500,000 b/d in 2016, with the US as the leading contributor.

OPEC crude oil production aver-aged 29.9 million b/d in 2014, a slight decline from the previous year, accord-ing to EIA. EIA expects OPEC crude oil production to remain flat in 2015 and fall by 300,000 b/d in 2016, with Iraq as the largest contributor of growth of the next 2 years. However, the threat of the Islamic State of Iraq and the Le-vant (ISIL) on northern Iraqi produc-tion and exports still looms.

OECD commercial oil inventories totaled 2.71 billion bbl at yearend 2014, equivalent to roughly 57 days of consumption. Projected OECD oil in-ventories are expected to rise to 2.78

150119OGJ_22 22 1/15/15 11:45 AM


GENERAL INTEREST

pendence and Security Act, US biofuels production has in-creased and renewable fuels have risen as a part of the total transportation fuels supply, the report noted.

At the same time, persistent challenges in courts and in the implementation of enacted laws, as well as significant changes in the US energy production landscape, have kept the RFS at the forefront of energy policy discussions, it con-tinued.

The US Environmental Protection Agencys continuing delays of biofuel quotas for 2014 and the associated compli-ance volumes further indicate that improvements to the RFS are needed, the report said. Experience with the program has not led to a consensus on what, if anything should be done as there have been calls to either repeal the RFS or leave it alone, it said.

McKee said the BPC decided to explore possible re-forms, starting with an advisory group with 23 members, including 7 from the oil and gas industry, which met three times during 2014. It produced 40 options for con-sideration by Congress, the Obama administration, and all stakeholders.

There were several recommendations which generated very robust discussions, he said. We tried to channel that into good ideas for further consideration. The options are not recommendations, McKee emphasized.

Some policy ideas either werent contentious, or had a large base of support. Much of these dealt with implementa-tion, he said. Data was one area: Many of our stakeholders felt there wasnt enough information out there. Another was that stronger consequences need to be in place to make sure EPA stays on its deadline targets.

McKee said he hopes the new Congress will begin ex-amining options outlined in the report soon after it arrives in January. I dont think it will be possible to reach solu-tions quickly, he said. No one option represents a com-plete solution. They all need to be combined if they are to meet one or more of the desired objectives. We definitely plan to start from Day One of the next Congress and get the ball rolling.

BOEM raises offshore oil spill liability limit to $134 millionNick Snow

Washington Editor

The US Bureau of Ocean Energy Management increased the liability limit for oil-spill related damages from offshore op-erations to $134 million from $75 million. The change will go into effect in January 2015.

The 79% increase is consistent with recommendations

billion bbl by yearend 2015 and to 2.79 billion bbl at yearend 2016, according to EIA.

US crude oil productionEIA forecasts US crude oil production to increase from an average of 8.7 million b/d in 2014 to 9.3 million b/d in 2015 and to 9.5 million b/d in 2016.

With WTI crude oil prices expected to average $49/bbl in this years first half, EIA expects 2015 drilling activity to decline because of unattractive economic returns in some areas of both emerging and mature oil production regions.

Many oil companies have cut back on their exploration drilling in response to falling crude prices and will concen-trate their drilling activities in established areas that already have productive wells, said EIA Administrator Adam Sie-minski.

Oil prices remain high enough to support some develop-ment drilling activity in 2015 in the Bakken, Eagle Ford, Niobrara, and Permian basin, albeit lower than previously forecast.

As noted in this months STEO, with WTI crude oil pric-es projected to start rising in this years second half, drilling activity is expected to increase again as companies take ad-vantage of lower costs for both leasing acreage and drilling services, causing production to resume rising at a relatively low WTI crude oil price.

Drilling activity is expected to increase in 2016 and US production should rise to its second highest daily output level since record production was set in 1970, Sieminski noted.

BPC report examines possible options to reform RFSNick Snow

Washington Editor

The Bipartisan Policy Center issued a report outlining 40 possible options for reforming the federal Renewable Fuels Standard in an effort to move discussion of the controversial program beyond simply preserving or scrapping it.

We found a lot of people were laying out lists of prob-lems, and wanted to start discussing possible solutio

ogj jan 2015

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