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Week of Feb. 28, 2005/US$10.00

International Petroleum News and Technology / www.ogjonline.com

Unconventional Gas—Promise & Problems

Land rigs in demand; fleet consolidations continue

PetroKazakhstan finds more oil in South Turgai basin
W. Siberia gas processors target higher production
Mobile extraction process provides effective site remediation

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Meet you at GASTECH · Hall 1, Booth H40

Solutions for the Oil&Gas Industry

„
I want production
not problems.“
I want to dominate my market with superior performance. I want the
tools that make me win, from the well to the refinery. State of the art.
Systems that work as hard as I do. With an eye on the bottom line. And
the certainty of an attractive return on investment. I want to know that
all systems are in place to keep downtime to a minimum. I don’t want
wishful thinking. I want to know it will happen.
Siemens Industrial Solutions and Services: We can do that.

www.siemens.com/oil-gas s

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Feb. 28, 2005

Volume 103.8

UNCONVENTIONAL GAS—PROMISE & PROBLEMS

Unconventional gas vital to US supply 20
Sam Fletcher
Unconventional Appalachian gas a key target for Cabot 22
Devon uses varied technologies with unconventional gas 24

REGULAR FEATURES
Newsletter ......................................5
Letters..........................................12
Calendar ......................................13 COVER
A rig drills for coalbed methane in Wyoming’s Powder
Journally Speaking ........................17 River basin. Unconventional gas plays are keeping rigs
busy in several states and likely will continue to do so
Editorial ......................................19 for a number of years, offsetting the decline of conven-
tional gas production in the Lower 48. OGJ explores the
Area Drilling ................................37 promise and problems of various unconventional plays in
this week’s special report, which begins on p. 20. Photo
Equipment/Software/Literature........60 courtesy of Devon Energy Corp.

Services/Suppliers..........................61
Statistics ......................................62
Classifieds ....................................64
Advertisers’ Index ..........................67
The full text of Oil & Gas Journal is available through OGJ Online, Oil & Gas Journal’s internet-based
energy information service, at http://www.ogjonline.com. For information, send an e-mail message
Editor’s Perspective/Market Journal ..68 to [email protected].

Oil & Gas Journal / Feb. 28, 2005 1

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“OTC's Houston location enables visits to many important

operators and service companies with headquarters in
the city… our attendance at OTC is an invaluable means
of ensuring that we are up-to-date with industry
developments and technological innovations; it goes far
beyond visiting the exhibitors and gaining an
understanding of the markets in which they operate.”
Scott Milne, director, KPMG LLP

OTC .05 • A Sea of Resources • An Ocean of Knowledge

Offshore Technology Conference • 2 – 5 May • Reliant Center • Houston, Texas, USA
For more information and to register online, visit www.otcnet.org/2005

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PennWell, Houston office

1700 West Loop South, Suite 1000, Houston,TX 77027
Telephone 713.621.9720/Fax 713.963.6285/Web site
www.ogjonline.com
Editor Bob Tippee, [email protected]
Chief Editor-Exploration G.Alan Petzet, [email protected]
Chief Technology Editor-LNG/Gas Processing
Warren R.True, [email protected]
GENERAL INTEREST Production Editor Guntis Moritis, [email protected]
Drilling Editor Nina M. Rach, [email protected]
Editorial: What kind of world?—3: The oil experiment 19 Refining/Petrochemical Editor David N. Nakamura, [email protected]
Special Report: Unconventional gas vital to US supply 20 Senior Editor-Economics Marilyn Radler, [email protected]
Sam Fletcher Senior Editor Steven Poruban, [email protected]
Senior Associate Editor Judy R. Clark, [email protected]
Special Report: Unconventional Appalachian gas a key target for Cabot 22 Senior Writer Sam Fletcher, [email protected]
Special Report: Devon uses varied technologies with unconventional gas 24 Senior Staff Writer Paula Dittrick, [email protected]
POINT OF VIEW: California veteran cites challenges for independents 26 Survey Editor Jeannie Stell, [email protected]
Associate Editor Angel White, [email protected]
Bill Stephens
Editorial Assistant Linda Barzar, [email protected]
CERA: Gas globalization hinges on technology, financing 28
CERA: Infrastructure critical to US natural gas supply 29
Refiners of heavy, high-sulfur crude face prosperous year 30 Petroleum Group President Michael Silber, [email protected]
Iraq seeks investment but nixes reserves privatization 30 Vice-President/Group Publisher Tim Tobeck, [email protected]
Eric Watkins Vice-President/Custom Publishing Roy Markum, [email protected]
Japanese energy policy focuses on supply security 32
WATCHING THE WORLD: Confusing times linger in Sudan 34
BLM’s 2006 budget includes increased user fees 35
Nick Snow PennWell, Tulsa office
1421 S. Sheridan Rd.,Tulsa, OK 74112
PO Box 1260,Tulsa, OK 74101
E X P L O R AT I O N & D E V E L O P M E N T Telephone 918.835.3161 / Fax 918.832.9290
Senior Technology Editor-Pipelines Robert G. Lawson, [email protected]
PetroKazakhstan exploration finds more oil in South Turgai basin 36 Presentation Editor/Equipment Editor Jim Stilwell, [email protected]
Niko chases oil in Hazira gas field off India 37 Assoc. Presentation Editor Jason T. Blair, [email protected]
Denver basin Niobrara gas hunt kicks off 37 Statistics Editor Laura Bell, [email protected]
Illustrators Alana Herron, Mike Reeder,Wes Rowell, Kay Wayne
Editorial Assistant Donna Barnett, [email protected]
DRILLING & PRODUCTION Production Director Charlie Cole

DRILLING MARKET FOCUS: Land rigs in demand; fleet consolidations

continue in the Americas 39
Nina M. Rach Washington
Tel 703.963.7707
3D seismic data predict Al-Khafji reservoir attributes 43 Washington Correspondent Nick Snow, [email protected]
Kalyan Chakraborty, Ahmed Mostafa

Calgary
PROCESSING Tel 403.277.6150
Gas processors in Western Siberia target higher production Special Correspondent Jim Stott, [email protected]

in plans through 2010 53

Alexander N. Ryazanov,Vladimir V. Konyuchenko,Valery S. Plotnikov OGJ News
Please submit press releases via e-mail to: [email protected]

T R A N S P O RTAT I O N
Mobile extraction process provides effective site remediation 57 Subscriber Service
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Copyright 2005 by PennWell Corporation (Registered in U.S. Patent & Trademark Office). All rights reserved. Oil & Gas Journal or any part thereof may Fulfillment Manager Chuck Hall, [email protected]
not be reproduced, stored in a retrieval system, or transcribed in any form or by any means, electronic or mechanical, including photocopying and
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Oil & Gas Journal / Feb. 28, 2005 3

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GIVE YOUR ASSET TEAM

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Feb. 28, 2005

International news for oil and gas professionals
For up-to-the-minute news, visit www.ogjonline.com

G e n e r a l I n t e r e s t — Q u i c k Ta k e s
Europe sees growing plans to offer 17.5 million shares of Statoil ASA to
diesel-gasoline imbalance private investors in Norway and Europe during
The imbalance between growing diesel oil con- July, reducing the Norwegian government’s stake to
sumption and falling gasoline demand in Europe, 71% from 76%. The government earlier offered
which especially affects France, will increase under 100 million shares to institutional investors in
European Union fuels specifications, said Jean-Paul Norway and abroad. Private investors will be able
Vettier, president of Total SA’s refining division. to buy Statoil shares for the same price,
Tax differentials favoring diesel automobiles $16.67/share, government officials said Feb. 18.
helped increase diesel consumption in France by Minister of Petroleum and Energy Thorhild
3.4%/year since 1996 and reduced gasoline use by Widvey said, “The current market environment
3.1%/year, with a 5% drop registered in 2004. allows us to further reduce the government’s hold-
“For political reasons, there is little chance that ing in Statoil…. Increasing liquidity is important to
taxation will change,” said Vettier. Automobile ensure that Statoil can be fairly valued in line with
manufacturers have cut their production of gaso- its international peers.”
line engines. Gasoline accounts for 25% of total Norway began Statoil’s partial privatization
fuels consumption in France. nearly 4 years ago under a mandate from
Refiners currently export 20% of their surplus Parliament (OGJ Online, Apr. 26, 2001).
gasoline and import 40% of the middle distillates
required to bridge the diesel gap. The imports SEC to hold discussion fo
come mainly from Russia, along with some sup- Sarbanes-Oxley feedback
plies from Algeria. Vettier questioned whether The US Securities and Exchange Commission
Russia will be able to maintain its exports. EU spec- will hold a roundtable discussion Apr. 13 in
ifications require that the sulfur content in motor Washington, DC, on implementation of Sect. 404
fuels drop to 10 ppm by 2009. of the Sarbanes-Oxley Act of 2002.
Total is building a 500 million euro hydroc- The federal securities regulator also solicited
racker at its Normandy refinery, due on stream in written comments from registrants, auditing firms,
mid-2006, to produce 1.3 million tonnes/year of and others who are implementing the new inter-
diesel and lower the sulfur content. The group also nal-control requirements as they prepare annual
has hydrocrackers at Leuna in Germany and financial reports to SEC. Submissions are due before
Flessingen in Holland. Apr. 1.
“But how many hydrocrackers can a company The commission emphasized that it is seeking
Europe sees growing afford to build?” Vettier said. “We have invested comments about implementing the internal finan-
diesel-gasoline imbalance 100 million to €500 million to bring our other cial control procedures and not feedback about a
refineries in France and Europe to standards, but specific set of inquiries. It plans to make submis-
✧ throughout Europe, only 10-15% of refineries can sions part of the public record and intends to post
afford such investments, especially if they are not them, as submitted, on its web site.
Well off Trinidad and Tobago well located and competitive.” Comments may be submitted electronically by
scores gas French refiners had hoped that an EU directive using the SEC’s internet submission form at
requiring fuels to contain 2% biofuels by 2005 and www.sec.gov/news/press.shtml, or by e-mail at
✧ 5.75% by 2010 would reestablish a balance [email protected] (with File Number 4-497
between diesel and gasoline. But the French gov- as the subject line).
US rig count near 19-year high ernment required ethanol in gasoline, which is Paper submissions should be sent, in triplicate,
expected to maintain that imbalance. to Jonathan G. Katz, secretary, SEC, 450 5th St., NW,
✧ Oil industry trade group Union Française des Washington, DC, 20549-0609.
Industries Pétrolières said five refiners plan invest-
Obaiyed gas plant upgrade ment of €2 billion for refinery upgrades during Venezuela, Brazil form
moves ahead 2005-09. The five are Total, BP PLC, Royal alliance, woo Cuba
Dutch/Shell Group, Italy’s Eni SPA unit Agip SPA,
Venezuelan President Hugo Chávez and
✧ and a unit of ExxonMobil Corp. Brazilian President Luiz Inacio Lula da Silva agreed
Feb. 21 to create a “strategic alliance” between the
Enbridge eyes 759-mile ‘synbit’ Norway to sell more Statoil two countries that included 20 accords, including
line to BC coast shares to provate investors cooperation in oil and gas production, refining,
Norway’s Ministry of Petroleum and Energy petrochemicals, energy, avoidance of double taxa-

Oil & Gas Journal 5

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I n d u s t r y S c o r e b o a r d
IPE BRENT / NYMEX LIGHT SWEET CRUDE
$/bbl
51.00
SCOREBOARD
50.00
Due to a holiday in the US, data for this week’s Industry Scoreboard are not available.
49.00
48.00
47.00
tion, and the sales of Brazilian jet fighters Cuban sector of the Gulf of Mexico.
46.00 to Venezuela. Chávez said, “Today we have reached
45.00 Brazilian-Venezuelan trade increased to the point of no return in the path towards
44.00
Feb. 16 Feb. 17 F eb. 18 1 F eb. 21 1 F eb. 22 $1.6 billion in 2004 from $880 million in integration.We have the continent’s largest
2003 and is expected to rise to $3 billion oil and gas reserves.”
in 2005. He added that Venezuela would rather
WTI CUSHING / BRENT SPOT José Eduardo Dutra, president of strike deals with other South American
$/bbl
51.00
Brazil’s state-run Petroleo Brasileiro SA countries than with the US.
50.00 (Petrobras), said, “One of the agreements The Brazilian president said, “Solutions
48.00 includes the construction of a lubricants to South America’s problems are within
47.00
46.00
factory in Cuba through a joint venture our continent and not in the north or
45.00 between Petrobras, Petroleos de Venezuela overseas.”
44.00 [SA], and Cuba’s state-owned oil company The alliance involves E&P cooperation
43.00
Feb. 16 Feb. 17 Feb. 18 F eb. 21 1 F eb. 22 Cupet [Cubapetroleo SA]. between PDVSA and Petrobras for projects
“The factory would require invest- in Venezuela and the creation of a regional
ments of $20 million and would produce financing system within the framework of
NYMEX NATURAL GAS / SPOT GAS - HENRY HUB lubricants in Havana for domestic con- Brazil’s National Economic Development
$/MMbtu
6.10
sumption and for exporting to neighbor- and Social Bank, which has committed to
6.00 ing Caribbean countries.” financing as much as $235 million for
5.90 Petrobras and PDVSA each want a one- infrastructure projects in Venezuela.
5.80
5.70
third stake to build the plant. With After 3 years of negotiation, Petrobras
5.60 changes to requirements that Cuba hold at and PDVSA have agreed to jointly build a
5.50 least 50% of any partnership forged with 150,000-250,000 b/d refinery in
5.40
Feb. 16 Feb. 17 Feb. 18 F eb. 21 1 F eb. 22 international companies, Dutra believes Pernambuco state in northeastern Brazil.
the deal is viable. PDVSA selected Brazilian executive Gil-
Brazilian analysts view this project as berto Prado, who conducted the negotia-
IPE GAS OIL / NYMEX HEATING OIL more than just the relatively small invest- tions, as a minority partner in the project,
¢/gal
144.00
ment in a lubricants factory. It represents said PDVSA sources.
141.00 both presidents’ continuing efforts to Construction on the $2.5-3 billion
138.00 remove Cuba from political isolation cre- project should begin in 6-8 months (OGJ
135.00
132.00
ated by the decades-old US embargo. Online, Feb. 7, 2005).
129.00 Petrobras also is evaluating oil explo- Brazil’s giant private petrochemical
126.00 ration and production in the deepwater group Braskem also will include Venezuela
123.00
Feb. 16 Feb. 17 Feb. 18 F eb. 21 1 F eb. 22

BAKER HUGHES INTERNATIONAL RIG COUNT: TOTAL WORLD / TOTAL ONSHORE / TOTAL OFFSHORE
2,700 2,665
PROPANE - MT. BELVIEU / BUTANE - MT. BELVIEU 2,400 2,325
¢/gal 2,100
97.00 1,800
93.00 1,500
89.00 1,200
85.00 900
81.00 600
77.00 340
300
73.00
0
69.00 Jan. 04 Feb. 04 Mar. 04 Apr. 04 May 04 June 04 July 04 Aug. 04 Sept. 04 Oct. 04 Nov. 04 Dec. 04 Jan. 05
Feb. 16 Feb. 17 Feb. 18 F eb. 21 1 F eb. 22
Note: Monthly average count

NYMEX GASOLINE / NY SPOT GASOLINE 2 BAKER HUGHES RIG COUNT: US / CANADA

1,600
¢/gal
130.00 1,400 1,295
128.00 1,200 1,114
126.00 1,000
124.00
800
122.00 574 589
600
120.00
400
118.00
116.00 200
Feb. 16 Feb. 17 Feb. 18 F eb. 21 1 F eb. 22
0
12/05/03 12/19/03 1/2/04 1/16/04 1/30/04 2/13/04 12/03/04 12/17/04 12/31/04 1/14/05 1/28/05 2/11/05
12/12/03 12/26/03 1/9/04 1/23/04 2/6/04 2/20/04 12/10/04 12/24/04 1/7/05 1/21/05 2/4/05 2/18/05
1 Notavailable.
2 Nonoxygenated regular unleaded. Note: End of week average count

6 Oil & Gas Journal / Feb. 28, 2005

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Exactly what you need.

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© 2004 Weatherford International Ltd. All rights reserved. Incorporates proprietary and patented Weatherford technology.

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in its international expansion strategy, a Braskem source told OGJ. a fold thrust belt linking the North African Atlas and the Sicily
The company signed a memorandum of understanding with Appennine, which contains giant Val D’Agri, Luna, Vega, and
PDVSA’s petrochemical arm Pequiven to evaluate possible new Gagliano fields in Italy.
business. The area will be the subject of oil and gas license offers in the
fourth quarter.
Tunisia Tyrrhenian basin due seismic surveys Tunisia is attracting new entrants with the recent 2000 hydro-
Tunisia’s state-owned L’Enterprise Tunisienne d’Activites carbon law, favorable fiscal regulations, flexible licensing proce-
Petrolieres (ETAP) let a contract to PGS Geophysical AS, Lysaker, dures, and a renewed emphasis on negotiating most terms.
Norway, to acquire exclusive 2D and 3D seismic data in the The country also is providing opportunities for international
Tyrrhenian basin, off northern Tunisia. direct investment due to its proximity to developed countries and
The shallow-water area, covering 25,000 sq km, is crossed by its close ties with the European Union. ✦

E x p l o r a t i o n & D e v e l o p m e n t — Q u i c k Ta k e s
Well off Trinidad and Tobago scores gas Mexico.The Allegheny South exploration well was drilled to 4,870
ChevronTexaco Corp. and 50:50 partner British Gas PLC con- m TD in 1,000 m of water.
firmed that their Manatee 1 exploration well currently under test Eni’s Agip Petroleum Co. is the current operator of Allegheny
on Block 6d off Trinidad and Tobago has encountered “significant field and Allegheny South, holding 100% working interest in the
amounts of natural gas.” ChevronTexaco operates the well, its first block. Eni estimated reserves at 20 million boe but gave no details
off Trinidad and Tobago. on production test results.
Manatee 1, drilled in 299 ft of water, lies just northwest of The positive well results and the well’s proximity to Allegheny
ChevronTexaco’s Loran field discoveries off Venezuela, with which field, which produces from a monocolumn or “mini” tension leg
it is on trend, and appears to extend the six shallow gas sands in platform, will make production start-up possible this year, the
Loran field into Trinidad and Tobago territory. (OGJ Online, Jan. 4, major said.
2005). Manatee 1 encountered six gas-containing sand intervals
for a total gross thickness of 899 ft. Newfield makes discoveries in UK, Gulf of Mexico
ChevronTexaco recently drilled three exploration wells—Loran Newfield Exploration Co., Houston, discovered oil and gas in
2X, 3X, and 4X—across the border on Venezuela’s Plataforma the UK North Sea and on several prospects in the Gulf of Mexico.
Deltana Block 2. • The North Sea find is on its 100%-held Grove prospect on
Manatee 1 results will help Trinidad and Tobago and Venezuela License Area 49/10a in the Southern Gas basin. The well was
evaluate the resource and negotiate cross-border unitization (OGJ drilled to 11,400 ft TD and encountered 120 ft of net gas pay in
Online, Aug. 17, 2004). the Permian Leman and Carboniferous Barren Measures sands. It
The recent discoveries also advance the Trinidad and Tobago flowed 25 MMcfd of gas and 330 b/d of condensate, constrained
government toward its goal of building a fifth and possibly sixth by limited equipment capacity.The well, drilled to appraise a 1971
LNG liquefaction train. undeveloped discovery, lies in the six-block Cleaver Bank North
section of the 100,000-acre license area. It holds reserves of 75-
Forest makes gas finds in Alaska, Rockies 100 bcf of gas equivalent. Newfield plans to install production
Forest Oil Corp., Denver, reported two successful exploration equipment and start production late in 2006.
wells in the Cook Inlet area of Alaska, where it has more than 1.1 • Newfield made its first deepwater Gulf of Mexico discovery
million net undeveloped acres. as an operator on its 50%-held Wrigley prospect on Mississippi
Its wholly owned West Foreland 2 well, drilled upstructure Canyon Block 506. Well 1, in 3,670 ft of water, encountered 90 ft
from the West Foreland 1, tested 15 MMcfd of gas equivalent from of high-quality, gross dry gas pay. A sidetrack, drilled 250 ft updip,
two zones. found 44 ft of similar quality gross gas pay.The reserves are 55-85
The Three Mile Creek Unit 1 well, in which Forest holds a 30% bcf of gas equivalent. Newfield will tie back the well to existing
interest, tested at an initial rate of 2 MMcfd of gas equivalent from infrastructure and expects first production in mid-2006.
shallow Beluga intervals. Further testing is scheduled for spring if • At its La Femme prospect on Mississippi Canyon Block 427,
weather conditions enable a rig to maneuver in Cook Inlet. Newfield drilled a gas well in about 5,800 ft of water. Tests from
Also, Forest made a gas discovery in the Green River basin of Well 1 logged about 90 ft of gross hydrocarbon pay. A second well
Utah. Hickory 4-20 on the south plunge of the Moxa arch reached is planned for midyear to determine field size and commerciality.
13,400 ft TD and encountered 22 ft of high-quality pay and excel- Newfield is the operator of the prospect, with a 50% working
lent gas shows, Forest said. interest.
Forest operates the well with a 58% working interest and has
more than 8,000 gross acres in the prospect area. The play was Nexen makes deepwater discovery off Louisiana
internally generated and supported by proprietary 3D seismic. Nexen Inc., Calgary, made a deepwater discovery off Louisiana
Additional follow-up opportunities exist and will be pursued after in the Gulf of Mexico in the Anduin prospect on Mississippi
the well is tested and completed. Canyon Block 755.The well, in 2,365 ft of water, cut 48 ft of gross
oil pay. A sidetrack is planned updip to define reserve size and
Eni makes oil discovery in deepwater gulf development options. Nexen is operator of the block in a 50:50
Eni SPA reported an oil discovery on Green Canyon Block 298 partnership with Newfield.
in deep water, 260 km south of New Orleans in the Gulf of

8 Oil & Gas Journal / Feb. 28, 2005

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Tests prove oil on Gabon Koula prospect platform for processing and export.
Shell Gabon SA and coventurer Pan-Ocean Energy Corp. Ltd. Statoil plans to produce the field from the Mærsk Inspirer jack
Helier, Jersey, UK, completed a 6-day well test on its recently up and use the Navion Saga tanker for storage. It plans to drill three
drilled AWOKOU-1 ST3 appraisal well on the Awoun permit in production wells, three water injection wells, and two water pro-
Gabon, West Africa. duction wells.
Oil flowed on test at 4,000 b/d at 640 psia through a 46⁄64-in. Statoil has a 49.6% share in the licenses. ExxonMobil Corp. has
choke and had a gas:oil ratio of 400 scf/bbl.The well produced no 30.4%, and Total SA and Norsk Hydro ASA hold 10% each.
water and encountered 31° gravity oil with properties similar to
the oil in nearby fields.The flow rate was constrained due to capac- Stranded gas off Peru to be developed
ity limitations of surface facilities. BPZ Energy Inc., Houston, signed a third agreement to sell nat-
The test results follow the coventurers’ earlier light oil discov- ural gas from currently idle gas and condensate fields off Peru to
ery on the Koula prospect (OGJ Online, Sept. 8, 2004). electric power generating concerns in Ecuador and Peru.
Shell, the operator, and PanOcean currently are determining the The three-phase project will require construction of a total of
feasibility of a development program and plan to appraise the 140 miles of pipeline, refurbishment of existing production facil-
Damier discovery—also on the Awoun permit—during the first ities in Corvina and Piedra Redonda fields on Block Z-1, in which
half. it holds 100% interest, and the drilling of additional wells (OGJ
Online, Jan. 5, 2005).
El Paso has deep gas find off Louisiana First phase gas sales, to be delivered in first half 2006 through
El Paso Production Co. has discovered gas in the deep shelf of a proposed 10-mile pipeline from Corvina field, will support BPZ’s
the Gulf of Mexico. integrated electric power project at Caleta Cruz, Peru (see map,
Well 1, drilled to 22,824 ft TMD on West Cameron Block 75, OGJ, Jan. 24, 2005, p. 38).
about15 miles off Louisiana in 35 ft of water, logged more than 40 Under a recent Phase II sales agreement, BPZ would sell a peak
ft of net gas pay in the Lower Miocene. 27 MMcfd of gas to Ecuadorian state-owned Electroguayas SA to
El Paso Production Holding Co. operates the well and holds a feed a 96-Mw turbine being built at Arenillas, Ecuador, 8 miles east
36% working interest. The first 25 bcf of gas equivalent produced of the Peru border and 40 miles northeast of Corvina field. A 40-
from the reservoir qualifies for royalty relief from the US Minerals mile pipeline is planned.
Management Service. In the third phase, BPZ would construct a line to deliver gas
El Paso plans to start testing the well in March and expects to another 90 miles further north from Arenillas to Guayaquil,
have a reserves estimate by yearend. After well tests, El Paso will Ecuador.
drill a second deep shelf prospect in an offsetting block, West
Cameron 62, and then resume development on West Cameron 75. Lukoil exits Zykh-Govsany project
Production from West Cameron 75 is expected in the fourth OAO Lukoil subsidiary Lukoil Overseas Holding Ltd. exited the
quarter after facilities are installed. Zykh-Govsany field-rehabilitation project in Azerbaijan with the
approval of its 50:50 partner State Oil Co. of the Azerbaijan
Statoil to start Volve production Republic.
Statoil submitted to the Norwegian Ministry of Petroleum and Lukoil said in a news release that the “main reason for the deci-
Energy a plan for development and operation of the Volve discov- sion is the incompatibility of the project’s economics with the
ery on Production License 046 in the North Sea. benchmarks established in the company for the rate of return.This
Volve, expected on stream early in 2007, has reserves of 70 mil- is due to the significant costs of environmental rehabilitation of the
lion bbl of oil and 1.5 billion cu m of gas. Production is expected contract area and the high degree of depletion of reserves.”
to peak at 50,000 b/d and to last 4-5 years. There are 15 wells operating in the fields, which produced
Associated gas from Volve will be piped to Statoil’s Sleipner A about 250 tonnes/day of oil in 2001. ✦

D r i l l i n g & P r o d u c t i o n — Q u i c k Ta k e s
US rig count near 19-year high Caspian well gets long expandable liner
US drilling activity continued to climb, up by 15 units to 1,295 Enventure Global Technology used its solid expandable tubular
rotary rigs at work the week ended Feb. 18, Baker Hughes Inc. technology to install a 3,068-ft, 133⁄8 x 16–in. open-hole liner
reported.That is up from 1,114 during the same period a year ago (OHL) in an ExxonMobil Corp. well in the Caspian Sea off
and the highest weekly rig count since late February 1986 when Azerbaijan.
the count was at 1,308 and falling. It claimed a length record for the system and called it the
Land operations accounted for most of the week’s increase, up Caspian’s first solid expandable.
by 10 units to 1,160 working. Enventure said ExxonMobil included the OHL system in its
Drilling in inland waters increased by 3 units to 28 rotary rigs original casing design to avoid borehole tapering, as formations to
working. Offshore drilling increased by 2 to 100 in the Gulf of be penetrated demanded more casing strings than conventional
Mexico and 107 for the US as a whole. pipe allowed.
Canada’s rig count was unchanged at 589 active that week, up Caspian Sea wells frequently encounter high formation pres-
from 574 a year ago. sures, multiple pressure regressions, and narrow margins between
formation pressure and fracture gradient. ✦

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P r o c e s s i n g — Q u i c k Ta k e s
Obaiyed gas plant upgrade moves ahead Mazeikiai lets hydrotreater contract
Badr Petroleum Co. (Bapetco), jointly owned by Egyptian AB Mazeikiu Nafta has let a $43 million contract to Foster
General Petroleum Corp. and Shell Egypt NV, let contract to KBR Wheeler Iberia SA for detailed engineering, materials procure-
Production Services for engineering and support services for three ment, and construction of an FCC gasoline-selective hydrotreater
projects related to the 300 MMscfd Obaiyed gas plant in Egypt. at its 263,420 b/cd Mazeikiai refinery in northwestern
Under the multimillion-pound, 2-year contract, Qasr gas field Lithuania—the only refinery in the Baltic States.
this year will be tied in to the Obaiyed plant, which will be The new facility comprises two units: a 32,000 b/sd sulfur
upgraded to boost capacity to 420 MMscfd of sales gas. KBR also hydrogenation unit and a 22,000 b/sd hydrodesulfurization unit.
will implement a precompression scheme to sustain Obaiyed pro- The project will help the refinery meet European Union specifica-
duction. tions taking effect in 2009 for gasoline sulfur content.
Mechanical completion is slated for fourth quarter 2006.
Four refiners to get MMS royalty oil
The US Minerals Management Service has let contracts to small Venezuela, Jamaica study collaboration
refiners Paramount Petroleum Corp., Paramount, Calif.; Gary- Venezuela and Jamaica signed a letter of intent to study work-
Williams Energy Corp., Denver; US Oil & Refining Co., Tacoma, ing together in refining, marketing, and distribution in Jamaica.
Wash.; and Placid Refining Co. LLC, Port Allen, La. to purchase The agreement allows the nations to assess the potential of
crude oil produced in federal waters of the Gulf of Mexico and upgrading and expanding the 36,000 b/d Petrojam refinery in
Pacific Ocean. Under the MMS Small Refiners Program, the agency Kingston. It also includes a technical, economic, and trade feasi-
sells royalty oil from offshore leases to qualified small refiners. bility study on the probable participation of Petroleos de Venezuela
Delivery of 50,000 b/d as outlined in the 6-month contracts is SA in Petcom Ltd., a subsidiary of Petroleum Corp. of Jamaica, to
scheduled to begin Apr. 1. expand PDVSA’s retail station network on the Caribbean island, as
well as on other nations in the area. ✦

T r a n s p o r t a t i o n — Q u i c k Ta k e s
Enbridge eyes ‘synbit’ line to BC coast Tampen area. A more likely scheme for exporting Skarv field gas
Enbridge Inc., Calgary, has proposed a 750-mile pipeline to would be via the existing Åsgard Transport System (ÅTS) to the
transport “synbit”—raw bitumen diluted with synthetic crude Kårstø processing complex north of Stavanger if ÅTS is upgraded
oil—from northern Alberta to Canada’s west coast for shipment by and the processing facilities debottlenecked, Gassco said. Deliveries
tanker to Asia and the US West Coast. could begin in 2010 under this scenario.
Enbridge envisions the $2.5 billion Gateway Pipeline to be a 30- Gassco said it would facilitate further work on this plan if the
in. system that could deliver 400,000 b/d from Edmonton, the licensees—Statoil ASA, which holds 50%, Enterprise Oil Norge AS
western terminus of the company’s existing pipeline, to either 40%, and Norsk Hydro Produksjon AS 10%—sanction field devel-
Kitimat or Prince Rupert, BC. A port capable of handling super- opment. “Should gas volumes corresponding to a medium-sized
tankers would be needed on the BC coast. Construction could start gas-fired power station be required at Tjeldbergodden in mid-
in 2008, and the line could be operating in 2009-10, Enbridge said. Norway, we can also allocate output from Skarv through existing
pipelines to that location as well as to Kårstø without noteworthy
Iraqi gas project to end Misan flaring investment,” said Thor Otto Lohne, Gassco’s vice-president for
Gulfsands Petroleum PLC, Houston, has signed a memorandum commercial development. He added that Gassco’s studies provide
of understanding with the Iraq Oil Ministry covering the Misan the Skarv licensees with a good basis for deciding whether to
natural gas project in southern Iraq. develop the field.
The project will entail gathering, processing, and transmitting The Norwegian Petroleum Directorate expects 30-35 explo-
associated natural gas from oil production in the region to end ration wells to be drilled on the country’s continental shelf in
flaring. Gulfsands said Misan has the potential to produce 46,600 2005, many in the Norwegian Sea. ✦
b/d of NGL and 338 MMcfd of dry, sweet natural gas.
Gulfsands, in cooperation with the Oil Ministry, has completed
CORRECTION: Due to a calculation error, the demand figures
a feasibility study and expects to conduct further technical work within the Industry Scoreboard were incorrect in the following
and commercial discussions with the Ministry by the end of June. issues: Feb. 7, Feb. 14, and Feb. 21. The correct figures for 4-
The project will involve the engineering, design, procurement, week average demand in 1,000 b/d are as follows:
construction, and operation of a gas gathering system, a natural Latest week 1/28 Residual 1,180
Motor gasoline 8,695 Other products 5,065
gas liquids plant, and transmission pipelines. It will be completed Distillate 4,122 TOTAL DEMAND 20,863
in two phases, with Phase I to last 3 years and Phase II, 2 years. Jet fuel 1,513
Residual 1,068 Latest week 2/11
Other products 5,025 Motor gasoline 8,922
Skarv gas likely to flow to Kårstø TOTAL DEMAND 20,424 Distillate 4,343
Jet fuel 1,497
Gassco AS, operator of Norway’s gas transport systems, said gas Latest week 2/4 Residual 1,233
volumes from the Halten-Nordland area of the Norwegian Sea are Motor gasoline 8,877 Other products 5,082
Distillate 4,233 TOTAL DEMAND 21,077
insufficient to warrant laying a pipeline from that area to the Jet fuel 1,508

10 Oil & Gas Journal / Feb. 28, 2005

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Coal fines can clog the proppant pack of your fractured CBM well and
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L e t t e r s

Corruption of oil
for food program
Your editorial “The UN inquiries”
rightly notes that the administrators of
the Iraqi Oil-for-Food Program should
have seen and stopped the kickbacks
(OGJ, Jan. 24, p. 19). My experience,
setting up budget control on a variety
of oil related projects for UN Agen-
cies, is that the kickbacks are seen and
are reported. It is the UN management
which actively ignores criticising their
client countries. In every one there was
blatant corruption involving the local
government and contractors. The UN
agencie’s permanent staff ignored formal
reports detailing the misuse of funds.
Funds supposedly directed to the poorest
people in the world. One of the biggest
abusers is currently in the news—Equa-
torial Guinea—no news to the World
Bank who has acquiesced at open brib-
ery since 1985.
One of the fundamental problems is
nepotism. The latest alleged dishonesty
concerns the son of the Secretary General
(Kojo Annan) while working for a UN
contractor (Cotecna). Ever since the
founding of the UN and its offspring
agencies, top directors have been political
appointees. While the staff appear to have
been chosen by ability there are national
quotas with a bias toward the Third
World. This would appear quite sensible
as the major objective of these organisa-
tions is to develop the poorer countries.
However due to the corrupt politics
existing in most undeveloped countries
the only applicants allowed are those ac-
ceptable to their government, chosen to
pay off past debts or to buy future loyalty.
The result is a structure not there to
improve the lot of others but to maintain
their lot of tax free dollar salaries, tax
free shopping, and diplomatic immunity.
Reports on corruption are systematically
suppressed so as not to derail the gravy
train. Street-wise UN contractors know
this and ensure they have well-connected
people on their staff.
Other International Organisations
such as the Islamic, Asian, and European
Development Banks have been structured
on similar weak foundations and also
suffer corruption.
AAAAAAAAAAAAAAAAA

12 Oil & Gas Journal / Feb. 28, 2005

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The “ménage a trios” of Kojo/Kofi/ to be brought in under the UN ban- were undeclared owners of the con-
Cotecna brings back memories of a ner. This technician then recommended tracting company nothing was done. I
project funded by a Development Bank the contractor to use and subsequently expect the same outcome over this latest
when they asked and paid for the help sanctioned their stage payments. These scandal.
of UN Industrial Development Orga- were authorised by the project director
nization (UNIDO). The bank’s project and paid. When UNIDO was advised that Mike Lillico
director specified the technical expert the project director and technical expert Mallorca, Spain

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www. spe.org. 17-19.
ton.com. 1. AAAAA
AAAAA Jakarta, (972) 952-9393, ite-exhibitions.com/og. 6-8. IADC Offshore Logistics Con- Oil & Gas Energia Exposición,
(972) 952-9435 (fax), e- ference & Exhibition, Lafayette, Russia & CIS Bottom of the Bar- Neuquén , Argentina, 54
Middle East Petroleum & mail: [email protected], website: North African/Mediterranean (713) 292-1945, (713) rel Technology Conference, Mos- 11 4322 5707, 54 11
Gas Conference, Dubai, www.spe.org. 5-7. Petroleum & Geosciences 292-1946 (fax), e-mail: cow, 44 (0)20 7357-8394, 4322 0916 (fax), e-mail:
65 62220230, 65 Conference & Exhibition, Al- [email protected], website: 44 (0)20 7357-8395 (fax), [email protected], website:
62220121 (fax), e-mail: SEAPEX Exploration giers, 31 30 6354055, 31 www.iadc.org. 11-12. e-mail: conferences@europetro. www.uniline.com.ar. 20-24.
[email protected], website: Conference, Singapore, 65 30 6343524 (fax), e-mail: com,Website: www.EuroPetro.
www.cconnection.org. 3-5. 62364533, 65 62364534 [email protected], website: AAA www. SPE/CoTA Coiled Tubing com. 18-19. Improved Oil Recovery
AAA
(fax), e-mail: seapex@seapex. AAAAA
eage.nl. 10-13. Conference & Exhibition,The Symposium, Budapest, 31 30
NPRA International Pet- org, website: www.seapex. Woodlands,Tex., (972) 952- API Spring Refining Meeting, 6354055, 31 30 6343524
rochemical Conference, San org. 5-7. AIChE Advances in Fluid 9393, (972) 952-9435 New Orleans, (202) 682- (fax), e-mail: [email protected],
Antonio, (202) 457-0480, AAA Catalytic Cracking Conference, (fax), e-mail: [email protected], 8000, (202) 682-8222 website: www.eage.nl. 25-27.
(202) 457-0486 (fax), e- Energy Security Council Atlanta, (212) 591-7338, website: www.spe.org. 12-13. (fax), website: www.api.org.
mail: [email protected], website: (ESC) Annual Conference, Las (212) 591-8894 (fax), 18-20. Global Petrochemicals
www.npra.org. 3-5. Vegas, (713) 296-1893, e-mail: meetmail@aich. SPE Asia Pacific Oil and Gas Conference and Technology
(713) 296-1895 (fax), org, website: www.aiche.org. Conference & Exhibition, API/NPRA Spring Operating Showcase, Cologne, 44 (0)
NACE Corrosion Confer- e-mail: info@energysecurit 10-14. Jakarta, (972) 952-9393, Practices Symposium, New 1242 529 090, 44 (0)
ence & Exhibition, Houston, ycouncil.org, website: www. (972) 952-9435 (fax), e- Orleans, (202) 682-8000, 1242 529 060 (fax), e-mail:
AAAA
(281) 228-6200, (281) energysecuritycouncil.org. 6-7. AIChE Spring National mail: [email protected], website: (202) 682-8222 (fax), [email protected],
www.spe.org. 12-14. website: www.api.org. 19. website: www.wraconferences.
com. 26-27.
AAA
ACHEMA Exhibition-Con- API Annual Pipeline Confer-
gress, Mexico City, 49 69 ence, Austin, (202) 682- Annual Aboriginal Oil & Gas
7564-0, 49 69 7564-201 8000, (202) 682-8222 Conference, Calgary, Alta., 1
(fax), e-mail: info@dechema. (fax), website: www.api.org. (800) 474-4829, 1 (800)
de, website: www.dechema.de. 19-20. 558-6520 (fax), e-mail:
12-15. [email protected], website:
Petroleum Engineering and www.infonex.ca. 27-28.
CIS Oil and Gas Sum- Reservoir Management & SPE
mit, London, 44 (0) 207 Bergen Section Seminar, Bergen,
Asia Pacific Technology
067 1800, 44 (0) 207 (972) 952-9393, (972) Conference (ARTC) and An-
242 2673 (fax), e-mail: 952-9435 (fax), e-mail: nual Meeting on Refining and
[email protected], [email protected], website:AAAA
www.Petrochemicals, Kuala Lumpur,
website: www.wraconferences. spe.org. 20. 44 1737 365100, 44
com. 13-15.
AAA 1737 365101 (fax) e-mail:
Russia & CIS Refining & [email protected], website:
Iran Oil Show & International Petrochemicals Business Con- www.gtforum.com. 27-29.
Oil, Gas, & Petrochemical ference, Moscow, 44 (0)20
Exhibition,Tehran, 00971 7357-8394, 44 (0)20 SPE Electric Submersible
4 295 1645, +971 4 7357-8395 (fax), e-mail: Pumps Workshop/Gulf Coast
295 1196 (fax), e-mail: [email protected], Section Meeting,The Wood-
[email protected], Website: www.EuroPetro.com. lands,Tex., (972) 952-9393,
website: www.iogpe2005.com. 20-21. (972) 952-9435 (fax), e-
13-16. mail: [email protected], website:
IADC/SPE Managed Pres- www.spe.org. 27-29.
Standardization & Certification sure Drilling Conference &
for the Oil & Gas Industry Exhibition, San Antonio, MAY
AAAAAAAAAAAAAAAAAAAAAAAAAAAA in Russia & CIS Confer- (713) 292-1945, (713) Canadian Oil Conference,
ence, Moscow, +44 (0) 20 292-1946 (fax) e-mail: Kananaskis Village, Alta.,
7878 6886, +44 (20) [email protected], website: AAAA
www. (403) 220-2380, (403)
7878 6887 (fax), e-mail: iadc.org. 20-21. 289-2344 (fax), e-mail:
[email protected], website: [email protected], website:
www.c5-online.com. 14-15. Gulf States Petroleum Exhibi- www.ceri.ca. 1-3.

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Offshore Technology Confer- LNG Asia Conference, website: www.ite-exhibitions. website: www.iadc.org. 19. website: www.iadc.org. 19-20. www.ict2005.com. 23-25.
ence, Houston, (972) 952- Singapore, 65 62220230, com/og. 17-19.
9494, (972) 952-9435 65 62220121 (fax), e-mail: IADC Drilling HSE Europe Global Congress on Informa- Canadian Energy Seminar,
(fax), e-mail: service@otcnet. [email protected], IADC Drilling Onshore Amer- Conference, Esbjerg, Denmark, tion and Communication Calgary, (212) 686-6808,
org, website: www.otcnet. website: www.cconnection. ica Conference & Exhibition, (713) 292-1945, (713) Technology in Energy, Busan, (212) 686-6628 (fax), e-
org. 2-5.
AAA org/LNGAHome.htm. 11-13. Houston, (713) 292-1945, 292-1946 (fax), e-mail: Korea, 82 2 563 8107, 82 mail: [email protected], website:
(713) 292-1946 (fax), [email protected], 2 563 9658 (fax), e-mail: www.pira.com. 24.
Annual Multiphase Measure- SPE International Symposium e-mail: [email protected], [email protected], website:
ment Roundtable, Houston, on Oilfield Corrosion, Aberdeen,
(979) 458-2054, (979) (972) 952-9393, (972)
458-1844 (fax), e-mail: 952-9435 (fax), e-mail:
[email protected], [email protected], website:AAAA www.
website: http://pumpjack. spe.org. 13.
tamu.edu. 4.
AAAAAA
API International Oil Spill
Annual Multiphase Pump Conference, Miami Beach,
User Roundtable, Houston, (202) 682-8000, (202)
(979) 458-2054, (979) 682-8222 (fax), website:
458-1844 (fax), e-mail: www.api.org. 15-19.
[email protected].
http://pump- Interstate Oil and Gas Com-
edu, website:AAAAAAAAA
jack.tamu.edu. 5.
AAAAAAAAA pact Commission (IOGCC)
Midyear Meeting, Anchorage,
Annual Oil & Gas Pipeline in (405) 525-3556, (405)
the Middle East Conference & 525-3592 (fax), e-mail:
Exhibition, Abu Dhabi, 0044 [email protected],
(0) 207 067 1800, 0044 website: www.iogc.state.ok.us.
(0) 207 430 9513 (fax), e- 15-17.
mail: wra@theenergyexchange.
www.theenergy- Latin American Energy
co.uk, website:AAAAAAAAAA
AAAAAAAAA 8-10.
exchange.co.uk. Conference, La Jolla, Calif.,
(858) 453-5560, (858)
CatCon 2005 Conference, 453-2165 (fax), e-mail:
Houston, (215) 628-4447, [email protected],
(215) 628-2267 (fax), website: www.iamericas.
e-mail:TCG@catalystgrp. org/events/. 16-17.
com, website: www.catalystgrp.
com. 9-10.
AAA Asian Petrochemicals Technol-
ogy Conference,Yokohama,
High Tan Crude Conference, 44 (0)20 7357-8394, 44
Singapore, 65 62220230, (0)20 7357-8395 (fax),
65 62220121 (fax), e-mail: e-mail: conferences@europetro.
[email protected], website: com,Website: www.EuroPetro.
www.cconnection.org. 9-10. AAA com. 17-18.

SPE International Symposium Annual World GTL Sum-

on Oilfield Scale, Aberdeen, mit, London, +44 (0)20
(972) 952-9393, (972) 7089 4183, +44 (0)20
952-9435 (fax), e-mail: 7089 4201 (fax), e-mail:
[email protected], website:AAAA
www. [email protected],
spe.org. 11-12. website: www.thecwcgroup.
com. 17-19.
AAA
NPRA Safety Conference, New
Orleans, (202) 457-0480, Uzbekistan International Oil &
(202) 457-0486 (fax), e- Gas Exhibition & Conference,
mail: [email protected], website: Tashkent, +44 20 7596
www.npra.org. 11-12. 5237, +44 (0) 207 596
5106 (fax), e-mail: matthew.
[email protected],

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REVITALIZING
the NORTH SEA
Through CHANGE

www.operatorsfor um.com 8 – 9 March 2005 • Aberdeen, Scotland

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The business climate is changing in the North Sea. Smaller independent oil companies are making
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PennWell’s first Independent Operators Forum focuses on this vibrant region and concentrates Event Director
solely on fostering the right business environment during this two-day, eight-track event. Attendees Phone: +44 (0) 1992 656 653
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• How to obtain critical and timely information to make sound business and investment decisions. Dawn Peek
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• How experienced service and supply companies are qualified to assist operators in achieving success.
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Your participation through attending, sponsoring, or exhibiting in this highly focused Independent Email: [email protected]
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J o u r n a l l y S p e a k i n g

‘No comment’ is no solution

er made a news event go away; it only ery nesting bird that might come along.
abdicated the company’s chance to tell Texaco was so reticent that, when it
its side. Industry opponents are eager to hired some of the first female geologists
present their viewpoints to the press in and engineers for field work in South
order to win over the public. Texas, it refused requests for interviews
about its expansion of women’s roles
Sam Fletcher Missed chances in the industry. Seems Texaco executives
Senior Writer Some oil companies have passed couldn’t get past “no comment” even
up chances to educate the public even when they had plenty to brag about.
In his Feb. 15 keynote address at when the press was on industry’s side.
Cambridge Energy Research Associates’ Like back in President Jimmy Carter’s Others excel
annual energy executive conference in administration when the government Fortunately, other companies were
Houston, ChevronTexaco Corp. CEO was convinced the US was running better at dealing with the media. Shell
David J. O’Reilly reminisced about a out of natural gas, and a New England Oil Co. demonstrated its prowess at a
meeting last year with six former CEOs congressman learned Texaco was using press conference back when oil com-
of Chevron Corp. and Texaco Inc., repre- some gas from its Tiger Shoals gas field panies were being blasted for “obscene
senting 55 years of collective corporate in the Gulf of Mexico to operate its Port profits” after finally having one pretty
leadership. Arthur, Tex., refinery. good year of commodity prices after a
Naturally, the group discussed The congressman called a press long string of sharply reduced earnings
changes they’d witnessed—new tech- conference to complain that the Texaco and even losses. Daily on the evening
nology, operating efficiencies, and new refinery was burning enough natural news, the major television networks
emphasis on environmental steward- gas to heat some 1,000 New England reported record high profits by then-
ship, corporate governance, and busi- homes that winter. Never mind that the Exxon Corp., Chevron, Texaco, and
ness transparency. One, said O’Reilly, refinery was producing heating oil for other major companies as gasoline
“remembered more than somewhat even more homes in that same market, prices soared at the pumps.
fondly, ‘If a reporter called, you could plus gasoline, motor oil, jet fuel, and But as television crews crowded into
say “no comment” and hang up on other products. It was a prime example Shell’s meeting, Shell representatives
him—and get away with it.’” of the opposition’s ignorance, and this handed out canisters of videotape. And
Of course, that got a laugh from the reporter immediately telephoned Texaco when Shell Oil’s president reported
hundreds of industry representatives for a response. large profits, he immediately turned
in the audience. Later in his speech, The response came some days later. to a 5-ft tall model of the Bullwinkle
O’Reilly called for industry members to “No,” said the Texaco spokesman, “we offshore platform and declared, “Here’s
educate Americans that energy is as es- don’t want to fight this out in public. what we spent it on.”
sential to their quality of life as national We’d rather settle it quietly behind the The film that Shell handed out to TV
security, or education, or healthcare. In scenes.” On another occasion, Texaco’s crews was of the installation months
the question-and-answer period fol- company magazine reported that work- earlier of Bullwinkle, the world’s tallest
lowing that speech, one of the written ers had delayed expansion of a gas treat- conventional offshore platform, in the
questions submitted from a reporter in ment plant because a mama bird—not Gulf of Mexico. That evening one could
the audience—but not passed on by the even an endangered species—was nest- flip across the major TV networks and
monitor to O’Reilly—was whether so ing in the construction area. Work was see Bullwinkle’s jacket sliding off its
much education of the American public delayed until the eggs were hatched and transport barge and into gulf waters.
would be necessary now if energy exec- the fledglings left the nest. Yet Texaco re- There was no mention of obscene
utives had spent more time talking with fused a newspaper’s request for a photo profits. Shell taught the American public
reporters in the past instead of hanging and interview, saying it didn’t want to that it had spent billions to provide
up on them. A terse “no comment” nev- set precedence for delaying work for ev- more oil. ✦

Oil & Gas Journal / Feb. 28, 2005 17

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E d i t o r i a l
What kind of world?—3

The oil experiment

What kind of improved world is the oil and gas out that it’s too early to call the project a success or
industry willing to envision and to help make real? failure, the report is ominous: “Important build-
It’s best to answer questions like this to the fullest ing blocks for transparent and effective oil revenue
extent possible before turning to questions about management are being developed and need to
how to make the vision real. Nothing compromis- be nurtured, but limited progress on this front is
es strategy faster than worry about tactics. tempered by worrying trends in the political envi-
Yet “how” is important—as important, ul- ronment, weaknesses and loopholes in the revenue
timately, as “what.” And lessons about how are management system, problems with corruption,
beginning to emerge from a model project in transparency deficits, and severe government
impoverished, war-ravaged, and historically cor- capacity constraints. The oil experiment hangs by
rupt Chad. a thread.”
Since July 2003, when oil from three Doba ba- A lesson from the project, the report says, is
sin fields in southern Chad began moving through that transparency isn’t enough. While the report-
a 663-mile pipeline to the Cameroon port of Kri- ing of government receipts and dispersals is essen-
bi, Chad has been an oil exporter. Its experience tial, the information has limited value to citizens
with this new status tests whether wealth gener- who can’t act on it in the absence of responsive
ated by oil development can improve the lives of political systems. The report also worries about
poor inhabitants of a country where it occurs. In limits on disclosure requirements, assignment to
too many countries, it has not done so. the oversight committee of “trusted allies” of the
government, and other deficiencies. It offers long
Addressing the curse lists of recommendations for all parties involved in
To address the corruption and system deficien- the project.
cies that give rise to what is known as the resource The oil and gas industry should pay special
curse, the World Bank imposed an extraordinary attention to this finding: “One of the most fun-
set of conditions for its financing of the Chad- damental lessons that Chad offers today is the im-
Cameroon project. The government of Chad agreed portance of ensuring that minimum conditions of
to dispersal terms specified by the bank for project respect for human rights, fiscal transparency, and
earnings, set up an oversight committee to moni- demonstrated government capacity to implement
tor money transfers, and submitted to other con- propoor programs are in place prior to promoting
trols. In general, Chad’s government is supposed investment in the extractive industries.”
to disclose its petroleum earnings directly related
to the development and pipeline project and spend High standard
most of the money on social needs such as health, That’s a high standard. It would preclude invest-
education, and environmental protection. ment in many countries where international oil
In impoverished countries like Chad, that’s eas- and gas companies now work. Most companies
ier said than done. Income surges at the start-up probably prefer to think their investments and op-
of petroleum projects can overwhelm government erations make possible and therefore should pre-
accounting and fiscal systems. Corruption tends cede the stipulated conditions. They prefer to think
to sluice wealth away from constructive purposes. the wealth created by their operations improves
The resulting injustice can foster political instabil- life for poor people in the countries where they
ity. Where this occurs, petroleum development work. Indeed, it can and should. Yet it too many
hurts social progress more than it helps. places it does not.
During its first 10 years in operation, the The Chad experiment is vitally important
Chad-Cameroon development and pipeline project because it represents an attempt by the oil and
will generate an estimated $3.5 billion for Chad’s gas industry, the World Bank, and governments
government, the annual revenue of which will to improve the record. And it’s a reminder to the
increase by more than 50%. The potential is great. industry that meeting a growing world’s energy
So is the challenge. needs—important as that is—isn’t enough. The
According to a recent assessment by Catho- real job is to make the world better tomorrow
lic Relief Services and Bank Information Center, than it was yesterday. ✦
performance so far has been rocky. While pointing

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GENERAL INTEREST
Unconventional gas resources have Unconventional plays dominate gas
become a major source of US supply drilling in the Rocky Mountains. In
over the last 20 years and will be even Wyoming, the state oil and gas supervi-
more important in the future. sor estimated 2004 gas drilling at
US gas supplies increased overall to 3,180 CBM wells and 800 other gas
19.4 tcf in 2003 from 19.2 tcf in wells. Unless commodity prices plum-
2000.Yet conventional gas production met in 2005, the supervisor is project-
declined in that same period, while un- ing 3,300 CBM wells and 900 other
conventional gas production increased gas wells.
by 1 tcf. Production of tight-sands gas Unconventional resources represent
increased to 4.6 tcf from 4 tcf, while more than 35% of the undiscovered gas
coalbed methane (CBM) production potential in the Lower 48. The Rocky
rose to 1.6 tcf from 1.4 tcf. Mountain region contains most of the
Unconventional gas “The largest percentage increase
was in gas shale, from 0.4 to 0.6
unconventional gas resource and is ex-
pected to increase unconventional gas

vital to US supply tcf, largely coming from the Barnett

shale, the most active and by far the
largest producing gas-shale play in
production by 50% by 2020.
“The ability to continue growing
nonconventional production [tight gas,
the US today,” said Scott R. Reeves, CBM, and gas shale] will be critical to
executive vice-president of Advanced sustaining production levels,” said the
Resources International Inc., Houston. National Petroleum Council in its most
Unconventional gas production is recent report. “Aside from the deepwa-
Sam Fletcher expected to grow to more than 10 tcf/ ter Gulf of Mexico, the only US basins
Senior Writer year in 2005 from around 5 tcf/year in maintaining sustainable production in-
2000, according to industry experts. creases (Rockies, East Texas-North
Of the 12 largest US natural gas Louisiana) are being driven by in-
fields listed by the US Energy Informa- creased nonconventional production.”
tion Administration, 9 are classed as Excluding unconventional and deep-
Do not delete this text
water gulf gas, the average estimated
ultimate recovery (EUR) per gas con-
SPECIAL nection in the Lower 48 fell 15% in

Report
Unconventional Gas—Promise & Problems
1990-99 as that resource base matured
and as technology gains and higher
commodity prices made smaller
prospects more economic to develop.
When drilling ramped up in response
to the 2000-01 gas price spike, the av-
erage EUR fell a further 18% with a
greater number of marginal wells being
drilled.
“The growing contribution to sup-
ply from nonconventional resources is
projected to offset the production de-
cline from conventional sources in a
unconventional. Known resources of robust price environment. The increase
unconventional gas are broadly distrib- in production from this segment re-
uted across the Lower 48 (see map). flects access to and development of
Unconventional gas plays are keep- large nonconventional resources, partic-
ing dozens of rigs busy in several states ularly in the Rocky Mountain region,”
and likely will continue to do so for a NPC said.
number of years, say industry experts.
The Fort Worth basin Barnett shale gas A difficult resource
play, confined to North Texas Dist. 9 for Unlike conventional resources, un-
several years, is beginning to spread conventional gas is difficult to produce
south into Dists. 5 and 7B. It is the because of low permeability or poorly
state’s busiest play in terms of rigs run- understood production mechanisms.
ning and number of wells being drilled “The technical difficulty is also asso-
(OGJ, Jan. 17, 2005, p. 32). ciated with tenuous economies,” said

20 Oil & Gas Journal / Feb. 28, 2005

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Kent F. Perry, di-

rector of explo- US UNCONVENTIONAL NATURAL GAS RESOURCES
ration and produc-
tion technology at
Gas Technology In-
stitute.
He classifies
unconventional
gas into four pri-
mary categories:
tight gas sands,
CBM, Devonian
shale, and natural
gas hydrates. What
those resources
have in common,
said Perry, “is that
they require new
technology devel- Tight gas sands
opment to be pro- Shale
CBM
duced at market-
clearing prices.”
Some of the Source: Schlumberger Ltd.
technology that
has aided develop-
ment of unconventional gas resources research under both the Department of tional gas resources.
include “lateral wells, the ability to stay Energy and the Gas Research Institute. “All geologic basins in the US con-
in thin zones and to identify natural Both programs have ceased.Yet uncon- tain some tight gas,” said Perry. “Only a
fractures in these very low permeability ventional gas production continues to small percentage is economically viable
formations—certainly the improvement grow, demonstrating its commercial vi- with existing technology.”
in seismic, 3D, 4D, vertical seismic pro- ability without incentives. Production of tight gas has been
filing across wells to help delineate greatly aided by improvements in hy-
these smaller, hard-to-see targets. Well Tight gas sands draulic facturing technology, Perry said.
completions and hydraulic fracturing Although they vary considerably in By 1970, some 1 tcf/year was being
technologies have improved quite a size, location, and quality, tight gas produced in the US. Increased com-
bit,” said Perry. sands are sandstone formations with modity prices and technology improve-
However, he said, “We’re probably less than 0.1 md permeability. ments in the latter part of that decade
starting to see signs of slipping behind They also are the most widespread resulted in rapid development of tight
in keeping up with the quality of the of the currently producible unconven- gas sands in several parts of the US. Tax
reservoir, as far as needing credits and continued devel-
technology improvements. opment of new technology
The emphasis seems to be had production levels exceed-
slipping a little bit in the do- ing 3 tcf/year in the 1980s.
mestic resource phase in that “Between 1970 and 1999,
the big companies tend to go tight production from the
overseas and the big service Lower 48 US increased from
companies follow their cus- 0.8 tcf to 3.3 tcf, accounting
tomers,” leaving the domes- for 19% of the total Lower 48
tic resource “a little bit on gas production,” said Perry.
the ignored side.” According to GTI’s most re-
Development of tight cent study, he said, “By 2001,
sands, CBM, and other un- some 40,000 tight gas wells
conventional gas resources were producing from 1,600
was stimulated 20 years ago reservoirs in 900 fields.”
Union Drilling Inc.’s Rig 39 drilled the Lawson B25 well for Cabot Oil &
by a combination of per- Gas Corp. to a TD of 3,610 ft in Logan County,W.Va., in April 2002.The Five basins—South Texas,
formance-based incentives in well, completed in the Devonian shale and Mississippian Injun and Big Lime, East Texas, the Permian in
the form of the Section 29 currently produces 60 Mcfd.The rig is currently drilling for Cabot in south- West Texas and New Mexico,
federal tax credits, as well as ern West Virginia. San Juan in New Mexico and

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GENERAL INTEREST
Unconventional Appalachian gas a key target for Cabot
For more than 100 years, Cabot Oil Devonian shale I think that the Appalachia gas play
& Gas Corp., Houston, has been Of the 200 wells that Cabot plans to has a pretty rosy future.”
drilling natural gas wells in Ap- drill in Appalachia, a quarter will be Cabot holds about 1 million acres
palachia, where conventional gas drilled in Devonian shale. While the De- under lease in Appalachia, “and only
sands have long been depleted. As a vonian shale “doesn’t match the quality a portion of that is developed,” Walen
result, the Appalachia basin now is of Barnett shale,” said Walen, the wells said. The company has “a large
dominated by tight gas sands “that aren’t particularly hard to drill. acreage position and a very robust
need to be fracture-stimulated in all “You just drill down and find where prospect inventory up there, so we
cases,” said Michael B. Walen, senior you think the natural fractures are, and see of years of drilling ahead of us.”
vice-president of exploration and pro- then you put a fracture stimulation on What price level for natural gas is
duction. those like you would a tight sand,” he necessary to develop those prospects?
Fifty years ago, Cabot didn’t have explained. “In our wells, which is typical “Probably around $3.50[/Mcf], in my
modern fracturing techniques. of most tight sands, we’ll frac and get opinion, would be kind of the low end
“People would shoot the wells with an initial rate, and that rate will decline of where we’d feel comfortable with
nitroglycerin in the best attempt to get rapidly for the first year or so. Then it the current level of rig costs and pipe
a good stimulation of these tight will turn the corner and flatten out and costs and so on,” Walen said.
sands,” Walen said. produce at a very stable rate for many, Close to the Northeast US market,
Today, he said, “It’s one of our core many years.” “Appalachia is probably the premier
areas, and we have a relatively large The problems? “We’re having a hard market in the US as far as the gas
operation up there with over 2,400 time getting rigs, which is probably the price. We have a positive basis differ-
wells. This past year, we drilled about story all over the industry,” he said. ential over Henry Hub, which makes
170 wells. In 2005, we plan to drill “We’re seeing very significant [price] in- the gas price even more attractive,”
about 200 more wells.” creases for tubulars and services. We’re Walen said. “One of our strengths in
Cabot also operates in the Rockies, also finding it hard to find people to do the East is that we own our own
Midcontinent, Canada, Gulf Coast, and the work and to retain people. Those are pipeline system and our own com-
Gulf of Mexico. Walen said, “70% of the main challenges we see in Ap- pression, and we’re able to drill our
our drilling is tight-sand-oriented. palachia, but that’s typical over every wells and get those wells hooked up
We’re going to drill 300 gross wells place we operate and for the industry.” and flowing very quickly compared
this year and about 250 of those wells Meanwhile, said Walen, “If gas prices with other operators.” He said, “We
are more or less tight-sand type reser- stay robust—and we think there is a have 2,400-plus miles of pipeline in
voirs.” good long-term outlook for gas pricing— that area.”

Colorado, and Green River in cates that the reservoir parameters used depletion recovery method that is uni-
Wyoming—have dominated tight sands to calculate the initial gas-in-place val- versally utilized in the production of
operations. The San Juan is the most ues were inaccurate and that potential coalbed methane,” said Perry. “This
mature of those basins so more drilling may exist for significant reserve volume method involves continuous removal of
activity is now being seen in the other gains in other fields as well,” he said. water from the natural fracture system,
four basins, said Perry. There are three parameters for deter- causing a progressive reduction in the
mining the amount of CBM in place: reservoir pressure, which in turn results
CBM the amount of free gas within the cleat in the desorption of the sorbed phase
Cumulative gas production volumes system, the gas dissolved in water in gas from the coal.”
have exceeded initial gas-in-place esti- the natural fracture system, and the vol- He said, “There are both practical
mates in many established CBM plays. ume of gas adsorbed within the coal and economic limits on the extent to
“For example, the 10-year cumula- matrix. which average reservoir pressure can be
tive gas production of 23 wells in the “This latter number can represent reduced using this methodology.” As a
Oak Grove field in the Black Warrior greater than 95% of the gas volume result, the gas industry has devised en-
basin was 3.2 bcf, more than double and must therefore be carefully calcu- hanced recovery technologies to accel-
the initial gas-in-place estimate of 1.55 lated,” Perry said. erate CBM production rates and also
bcf,” said Perry. Producers commonly can recover overcome limitations of the recovery
“Cumulative gas production vol- 50-70% of the initial gas in place in method. One technology involves in-
umes for many coalbed methane wells CBM reservoirs. jection of nitrogen or carbon dioxide
in the San Juan and Powder River “This type of recovery, somewhat into coalbed reservoirs to promote des-
basins also exceeded initial gas-in-place lower than for conventional reservoirs, orption.
estimates. This underestimation indi- is an inherent feature of the pressure- “These technologies can increase gas

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Unconventional Gas—Promise & Problems

production rates as much as six-fold were looking at almost twice the sale something like enhanced CBM technol-
and increase producible gas reserves as price of natural gas, so if someone had ogy will help unlock that,” said Reeves.
much as two-fold, enabling commercial that tax credit they had quite a benefit.”
exploitation of resources that otherwise In its development of CBM in the Devonian shale
would remain undeveloped,” Perry US, the natural gas industry applied ex- In shale reservoirs, natural gas may
said. isting technology in new ways. Tech- exist as free gas within the rock pores,
The three most active CBM play ar- nology is still being adapted to CBM as adsorbed gas in organic material,
eas are in the Powder River, Uinta, and and other unconventional gas re- and as free gas within the system of
Raton basins, with Powder River the sources, said Pilcher. natural fractures. Those different storage
most active of the three. In 2000, CBM “Even in CBM, we have not reached mechanisms may affect the speed and
production from those basins totaled the full physical potential. If you look efficiency of gas production, Perry said.
250 bcf from more than 2,200 wells. at what’s going on in the San Juan “Every gas-shale play is unique and
US production of CBM grew to 1.6 basin today, there are wells that have must be examined, explored, and ex-
tcf in 2003 from 150 bcf in 1989. been productive that are being reen- ploited differently,” he said.
According to Raymond C. Pilcher, tered and new technology is being ap- Shale-gas plays have three key advan-
president of Raven Ridge Resources plied, and more gas is being produced. tages: moderate exploration costs, high
Inc., Grand Junction, Colo., govern- There’s in-fill well drilling, and now success rates, and slow production de-
ment incentives were crucial to growth there is a lot of work in basins where cline rates.
in the early years. there was [previously] no suspicion of “The rapid growth in gas-shale well
“One of the things that spurred there being producible natural gas,” he completions that occurred during the
CBM development in the late 1970s said. late 1980s and early 1990s in the
and up through the early 1990s was, in “The Green River basin contains 314 Antrim shale play in the Michigan
fact, the Section 29 [US] tax credit,” he tcf, by far the single largest resource basin has been repeated today in the
said at an energy conference in Denver base of CBM. We think that’s going to Fort Worth and San Juan basins, driven
late last year (OGJ Online, Dec. 29, be a place of increasing activity. The by the powerful economic incentives of
2004). “It had a very large impact. At coals are very deep there and will re- low risks and low finding costs,” Perry
the point that the tax credit peaked, we quire special technology. We think said.

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GENERAL INTEREST
Devon uses varied technologies with unconventional gas
At the end of 2004, Devon Energy in place with the current technology. So ing technology.
Corp., Oklahoma City, had 144 hori- with our dominant position there, we “We have a good partnership with
zontal wells on production from the are continuing to find new ways to un- the University of Oklahoma,” Hadden
Barnett shale in North Texas. Horizon- lock further recovery, as well as expand- said. “They’ve helped us on some of
tal wells account for 22% of Devon’s ing the play out into noncore areas, our technologies like frac mapping.
total Barnett shale production of ap- which are not really devel- Those partnerships
proximately 556 MMcfd. oped—more like frontier where we’ve pulled dif-
Stephen J. Hadden, senior vice- areas.” ferent ideas from differ-
president, exploration and production, He said, “That holds ent sources and applied
said 37% of Devon’s production of gas true for other areas where them to the problems at
and gas liquids comes from tight we’re continuing to ex- hand have really worked
sands, coalbeds, and fractured shales. pand, but we have to con- quite successfully for
Devon’s production of unconventional tinually apply a unique us.”
gas amounts to about 1 bcfd. combination of technolo- That’s how much
In 1989, Devon was among the first gies against the reservoir technology is evolving
companies developing coalbed characteristics to try to in unconventional plays,
methane (CBM) in the San Juan basin. unlock that gas.” he said.
“That’s how we really got started, That combination of “I think there is cer-
and that’s grown over time. Obviously, technologies is “reservoir- tainly [research and de-
the potential is significant,” said Had- specific or basin-specific,” velopment] going on in
den. Hadden said. “A great ex- the industry, pure R&D
ample of that is the Bar- that will find its way in-
Barnett shale nett. Initially, people were to applications at the
He acknowledged, “Some people doing conventional gel reservoirs. But I think
would argue that some areas like the fracturing in the Barnett Stephen J. Hadden mainly it is through
Barnett shale may be mature and and really weren’t getting these partnerships and
‘conventional,’ but I would challenge attractive [production] rates and real these applications of trying some new
that thinking, because in an area like economic completions. Ultimately, we things in new combinations that’s
the Barnett shale, while we’ve had sig- went to light sand fracs or kind of slick really helping us find our way to turn-
nificant success and opportunities are water fracs.” That, he said, “increased ing unconventional gas plays into
growing, we’ve grown [production] the productivity on a per-well basis and good value-added economic plays for
from really nothing in the late ‘90s up really unlocked the play.” the industry.”
to 550 MMcfd.” Producers also are finding that
That play produces more than 1 Partnerships technology used in one unconvention-
bcfd and is the largest gas field in As the largest US independent, De- al gas play often is transferable to a
Texas. Yet, said Hadden, “We are only von forms partnerships with service different play. However, Hadden said,
in recovery of 12-15% of the total gas companies and universities in develop- “Wells are like people; every one is

Perry defines shale gas as gas in shale, with recoverable resources esti- gas plays are sustaining the contribu-
which an organic shale interval is both mated at 30-76 tcf, excluding the Lewis tion of this unconventional resource in-
source and reservoir. shale, said GTI. to the 21st century,” said Perry.
“Fractured shales have been a source In the 1920s, gas was produced “Operators have shown that natural
of gas for the US gas industry since its from the black, highly carbonaceous gas production from a variety of frac-
earliest days. The first known commer- Pennsylvanian Cherokee Group Fort tured shale reservoirs can yield favor-
cial natural gas production from the US Scott shale in eastern Kansas and in able financial returns when the unique
was from a fractured shale reservoir in Jackson and Cross counties in Missouri. characteristics of each reservoir are un-
the Appalachian basin,” he said. Since the late 1980s, gas also has been derstood,” he said. “Every new shale-
In 2001, more than 28,000 gas- produced commercially from the frac- gas play has presented technical chal-
shale wells were producing nearly 380 tured Pennsylvanian Excello shale in the lenges that operators have overcome by
bcf/year of gas from five basins: Ap- Cherokee basin of southeastern Kansas. identifying and solving play-specific
palachian, Michigan, Illinois, Fort “While the Appalachian basin has problems. Their success in these rela-
Worth, and San Juan. Gas-in-place esti- provided the bulk of historical shale- tively low-cost plays has sparked a
mates for those five plays totaled 580 gas production because of its proximity resurgence of industry interest in evalu-
tcf prior to development of the Barnett to East Coast markets, the newer shale- ating the production potential of the

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Unconventional Gas—Promise & Problems

However, Reeves said, gas shale “did

different and has unique characteris- not grow as fast as CBM; it’s a little be-
tics. That certainly is true with uncon- hind the curve. Still, there was growth
ventional gas plays. The expertise, the in gas-shale production from 1992
technology, and more or less the through today, commercial without in-
thinking of how you characterize, how centives.” US gas-shale production
you develop, and how you deplete an grew to 600 bcf in 2003 from 65 bcf
unconventional gas resource is really in 1980.
the competency that can transfer For gas shale, said Reeves, “We see
across field boundaries and across perhaps not anything like enhanced
basins.” CBM as being a driver of commercial
production, but really since gas shale’s
Depletion profiles development and plays are much less
Depletion profiles for unconven- mature, we see the growth there to be
tional gas plays “depend on the basin in new plays that have not yet been de-
that you’re in and the nature of the veloped and gas shales that have not yet
rock that you’re working with, the gas been fully assessed today.”
content, the pressures, and lots of
other things,” Hadden said. Gas hydrates
Early CBM development had a Commercial production of natural
lengthy dewatering phase. However, gas hydrates awaits technology devel-
Hadden said, “We’re also finding opment and market access, Perry said,
coalbed methane gas opportunities calling gas hydrates “an important re-
that don’t have any water.” source for long-term gas supply.”
Early development of unconven- Gas hydrates are a unique class of Helmerich & Payne Inc.’s Rig 235 drills a natural
tional gas resources did benefit from chemical compounds in which mole- gas well for Devon Energy Corp. in the Barnett
US tax credits to encourage producers cules of the guest material are enclosed shale in Denton County,Tex., in late 2004.The
to take the economic risks to “kick- within the open solid lattice of a host rig is one of a dozen units that Devon Energy cur-
start our industry,” said Hadden. material, without bonding chemically, rently has drilling in the Barnett shale.
“Now with relatively strong gas to form clathrates. Common examples
prices in the US, we continue to see of gas hydrates are methane and water drate. The first, Mallik 3L-18C, was
people with competency thrive and or carbon dioxide and water (OGJ, Feb. drilled below permafrost in the
continue to develop those resources 7, 2005, p. 43; Feb. 14, 2005, p. 45). Mackenzie River delta of Canada’s
competitively with relatively low costs Humphrey Davy, the 19th century Northwest Territories. The second was
and reasonable productivity that make English chemist who discovered the drilled by a Japanese consortium in
it economically attractive,” he said. anesthetic effect of nitrous oxide, and 3,100 ft of water adjacent to the
Still, there are some areas of un- his assistant, Michael Faraday, known Nankai Trough off southeastern Japan.
conventional gas, “some reservoirs in for pioneering experiments in electrici- Both showed presence of large volumes
some basins, where we’re still at the ty and magnetism, discovered clathrate of methane hydrate.
edge of the economic envelope.” compounds in a winter experiment DOE and Texas A&M University,
with chlorine-water mixtures in the through the Ocean Drilling Program,
early 1800s. They found that as the have continued to recover and analyze
shale-gas resources present in basins mixtures cooled, a solid material deepwater samples of methane hy-
throughout the US.” formed at temperatures above the nor- drates.
Perry said, “The major exploration mal freezing point for water. “The US Geological Survey has esti-
risk in most shale-gas plays is generally In the late 1960s, naturally occur- mated that there is more organic car-
not the drilling of a truly dry hole, but ring methane hydrates were found in bon contained as methane hydrate than
rather in not obtaining an economically the giant gas fields of western Siberia all other forms of fossil fuels com-
viable gas production rate. Most shales and on Alaska’s North Slope. In 1974, bined. In fact, methane hydrates could
have very low (micro-darcy level) ma- Soviet scientists recovered large hydrate provide a clean source of energy for
trix permeabilities and require the pres- nodules from the floor of the Black Sea. several centuries,” said Charles E. Taylor
ence of extensive natural fracture sys- In the early 1980s, the Glomar Chal- of the DOE and Jonathan T. Kwan, of
tems to sustain commercial gas produc- lenger drillship found evidence of the University of Oklahoma, in the
tion rates.” methane hydrates in cores from the preface to the book they edited, Ad-
Production from gas shale, too, be- ocean bottoms as part of the Deep Sea vances in the Study of Gas Hydrates.
gan in the early 1980s at low rates with Drilling Project. They expect hydrates to become a com-
the help of Section 29 tax credits and In the late 1990s, the first two wells mercially viable product “in the next
research support from DOE and GTI. were drilled to explore for methane hy- 10 to 15 years.” ✦

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GENERAL INTEREST
California veteran cites challenges for independents
Bill Stephens A self-described workaholic, Holmes Because California’s oil is heavy, it
OGJ Correspondent evolved in recent years from a mom- trades at a discount to benchmark West
and-pop company with three office Texas Intermediate (WTI) crude. And
Two large, flapping signs outside employees—including his wife—to a environmental regulations have long
Holmes Western Oil Corp.’s Taft, Calif., large mom-and-pop with 19 office em- been strict.
office proclaim: NOW HIRING. ployees—including his wife. Overall, Also, a few large oil companies ac-
The signs reveal a shortage of oil- he has 160 employees. And he’s active count for most of the state’s oil produc-
field workers, just one of many chal- in industry organizations. tion. Holmes says that because there are
lenges California independent produc- Holmes believes independent pro- no oil pipelines out of California, inde-
ers face today, even with revenues forti- ducers have a key niche in California. pendents can sell their crude to only
fied by high oil prices. “We’re the low-cost operators who two or three large local companies. And
Veteran California independent oil keep mature fields going,” he says. “We while California ranks fourth among
producer Fred Holmes, president of give personal attention to a few fields the states in oil production with about
Holmes Western, says 719,000 b/d, its aging
that despite strong oil P O I N T O F V I E W fields are declining at
prices, these are chal- about 4%/year.
lenging times for Cali- we know well. My The shortage of experienced oil-field
fornia independents. family has been in the workers results from layoffs to which
Like mom-and-pop oil business in this producers resorted to survive oil-price
grocers, he says, tradi- area since the 1920s, slumps over the last 20 years. Holmes
tional mom-and-pop and we’ve worked says young people see oil-field jobs as
oil producers are be- these fields all our unstable, hard, dirty, low-paying work.
coming extinct. To sur- lives.” They can make more money in the
vive, small and medi- About 13% of Cali- building trades or grocery stores.
um-sized independents fornia oil production Holmes has two rigs idle because of a
need to be excellent is from stripper wells, lack of experienced crews.
operators—profession- largely operated by County, state, and federal environ-
al, resourceful, and independents. Inde- mental regulations are proliferating.
modern. pendent producers, “It can take years to get a drilling
Holmes is in a posi- when Occidental Pe- permit for a sensitive area,” Holmes
tion to know. A third- troleum Corp. is in- says. “New laws keep coming out, and
generation independ- cluded, account for it’s time-consuming to interpret them.”
ent, Holmes grew up "You can't fly by the seat more than one third Also, currently high natural gas
on an oil lease near of your pants and run of California’s oil pro- prices hurt California’s oil producers by
Taft. In 1957, at age 13, your business out of a duction. raising the costs of generating steam
he started working after needed to mobilize heavy oil.
school and summers as
shoebox. The days of Challenges Another challenge for California’s
a rig hand, eventually the wild, wild West are Holmes is pleased independents: Large oil firms aren’t
doing all the oil-field over for independents." that sustained high oil selling properties to independents as
jobs. His family has —Holmes Western Oil prices are stimulating readily as they used to, Holmes says.
worked the same Kern Corp. Pres. Fred Holmes his business and that “Five or 10 years ago we thought
County fields for more new tools are helping the majors were going to sell all their
than 80 years. him squeeze oil from California properties to independents in
Holmes also wears three hats: pro- old fields. their quest for bigger overseas targets,”
ducer, drilling contractor, and well- “But it’s not a bed of roses for Cali- he says. That hasn’t happened.
service contractor. As a producer, he’s fornia independents these days,” “The big firms own a large percent-
grown from 90 b/d to 1,500 b/d, Holmes says. age of San Joaquin Valley acreage and
with production in six fields stretching California is a unique oil province, are holding onto their fields because oil
over three southern San Joaquin Valley with unique challenges for independ- prices are good and because of ‘cradle-
counties. He’s the 28th largest oil pro- ents, he points out. The state has much to-grave’ liability regulations,” Holmes
ducer in California, drilling 30 more oil than gas, and the oil is in the says. “Majors don’t want to sell old
wells/year, often reviving abandoned southern region, where Holmes oper- properties to small independents with-
Bureau of Land Management (BLM) ates. out deep pockets because later, when
leases. the time comes to abandon, liability

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could revert back.”

In addition, he says, California crude
prices lately have been lagging even
Career highlights
more than usual behind WTI. Fred Holmes is president of Holmes Western Oil Corp., Western Drilling, and West-
And independents have little ability ern Well Service, all based in Taft, Calif.
to take advantage of higher oil prices
Employment
by adding production through ex- Holmes started working part-time in the California oil fields in 1957 for Western Well
ploratory drilling, Holmes says. Service. A third-generation independent oil producer, Holmes grew up on the family oil
“The state is pretty well drilled up lease. Western Well Service was started in 1943 by his father. Both Western Drilling
for oil, and the easy stuff has been and Holmes Western Oil Corp. started up in the 1980s.
found,” he says. Education
To navigate the challenging business Holmes received training as a mechanic at Los Angeles Trade Tech.
climate, Holmes says small and medi-
um-sized independents must be excel- Associations
Holmes has been active in the California Independent Producers Association, Inde-
lent operators—resourceful and as pro- pendent Oil Producers Association, Association of Energy Service Companies , Ameri-
fessional as large companies. can Association of Drilling Engineers, and the West Kern Oil Museum.
“Some independents have nostalgia
for the old days,” Holmes says. “But
you can’t fly by the seat of your pants when it comes to the environment and business people to help you run it,” he
and run your business out of a shoe- safety or you will soon be in trouble.” says.
box. The days of the wild, wild West are • To help comply with burgeoning
over for independents. Suggestions for independents environmental regulations, hire enough
“Mom-and-pop firms have had to Holmes has some suggestions for in- staff. Mostly to deal with 140 different
adapt because government agencies ex- dependents: county, state, and federal agencies,
pect professionalism. One person can’t • Run the company like a profes- Holmes has expanded his office staff
handle it.You have to do things right sional business. “You need professional greatly. “You need people to help you

AAAAAAAAAAAAAAAAAAAAAAAAAAA

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figure out environmental rules, which programs these days.” dustry’s reputation still lags. A better
are coming faster than we can decipher Holmes thinks that as job stability reputation can mean more community
them,” he says. continues and wages eventually im- acceptance, fewer regulatory restric-
“When the government introduces a prove, more young people will seek tions, and more access to oil re-
rule that goes too far, you have to push oil-field work. sources.”
for a realistic compromise. And you • Be a resourceful operator. When • Hold on to what’s good about be-
need to keep pushing for more-stream- Holmes’s well-pulling business slowed ing an independent.
lined processes. But you need to com- in the 1980s, he also began offering “Keep your intimate knowledge of
ply with regulations because that’s what drilling services. When oil prices local fields,” Holmes advises. “Keep the
John Q. Public wants. If you don’t oper- sagged, he also became a producer by family feeling in your company, even as
ate responsibly, you won’t be around.” purchasing inexpensive BLM leases. The it grows. We don’t have executive bath-
Holmes notes that his oil firm con- firm’s versatility has helped it weather rooms, and everyone has the same re-
sistently wins lease-maintenance awards oil business cycles. tirement plan. We are proud of the fact
from California’s Division of Oil & Gas. • Arm yourself with modern oil- that some employees spend their ca-
• Be a safe operator. “It’s the way field tools. “We purchase dried-up, reers with us. I still enjoy this business.
business has got to be done, and the edge properties and use science to find And today I do a whole bunch of stuff
industry has made impressive strides. missed spots,” he says. “We use tools I don’t like (paperwork), so I can do a
As a good operator, you need to be on like horizontal drilling to squeeze out little bit I like (visiting the field).”
the leading edge. We do daily safety more oil.” Despite the challenges for independ-
training.” • Participate in industry organiza- ents in California, Holmes doubts he’ll
• Actively recruit, train, and retain tions. “For mom-and-pops, they are ever retire. He’d even encourage his
oil-field workers. Not only does our eyes and ears in Sacramento and grandchildren to become independent
Holmes advertise for workers, but he Washington, keeping us informed of California producers.
runs a comprehensive in-house training new regulations. They also provide in- “All my life I’ve been hearing that
program and serves on the boards of dustry networking.” California has only 10 more years of oil
two Taft-area oil-field schools. • Be an industry advocate. “Because production,” he says. “And while Cali-
“Good operators don’t put untrained we haven’t done a good job of telling fornia’s oil fields are declining, they’re
people out in the oil field,” Holmes the public how much we’ve improved declining slowly. There are lots and lots
says. “You need more formal training operations in the last 20 years, our in- of years left.” ✦

CERA: Gas globalization hinges on technology, financing

Paula Dittrick nomic gas reservoirs,” Dingle said of Challenges
Senior Staff Writer
ExxonMobil. The global gas business faces a
Emerging LNG technology and new bright future full of potential opportu-
Financial resources, technological long-distance, large-capacity pipelines nities, but participants must overcome
advances, and business partnerships are will provide an increasingly economic numerous challenges in order to sur-
key to natural gas globalization, Exxon- gas supply for consumers and will pro- vive and thrive, Dingle said.
Mobil Gas & Power Marketing Co. Pres. vide new opportunities for producers A wellhead-to-market LNG project
Philip J. Dingle told an annual confer- to develop and market remote gas, he easily can involve more than 50 major
ence hosted by Cambridge Energy Re- said. contracts as well as numerous financing
search Associates in Houston Feb. 16. International gas projects require agreements, he said.
“New technology developed by our strong business relationships among “It is critical to realize that the in-
industry has greatly reduced the cost of governments, oil companies, and finan- vestors making significant capital out-
converting and transporting remote ciers, he said. lays will require an adequate level of
sources of natural gas as LNG. That is “What makes the gas business dif- commercial certainty—both from the
allowing more competitive access to re- ferent from oil markets is that resource agreements that they enter into and al-
mote markets and remote supplies,” development in developing countries so from the business environments
Dingle said. also depends upon fair regulatory cli- where these are implemented,” he said.
ExxonMobil Corp. invests more than mates in the consuming countries be- “This is just as important as the steel,
$500 million/year in technology re- cause the value chain for gas is tightly welding, and engineering that goes in-
search. linked from the resource to the con- to these projects.”
“We’re developing new technologies sumer,” Dingle said. Governments in gas-producing
that will lower LNG and gas infrastruc- International LNG partnerships reach countries must promote a business en-
ture costs, and we’re improving gas re- “from the reservoir to the consumer,” vironment that encourages the massive,
covery techniques in previously uneco- he said. long-term investments that industry

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needs to build gas production along side can play in facilitating timely gas Dingle said.
with the necessary LNG or pipeline in-developments, he said. All these conditions must be met to
frastructure. “Such an environment re- Exporting countries want economic sustain a favorable business framework,
quires a stable legal framework of pre-
access to markets, while importing he said, noting that international gas
dictable tax structure, clarity of con-
countries want secure, reliable energy projects are very complicated.
tract, and an impartial court system, supplies. “It’s not just about the money, and
and a level playing field for all partici-
“The commitment to free-market it’s not just about the technology. It is
pants,” Dingle said. principles in a consuming country is also about the knowledge and the abili-
just as important as fair and open regu- ty to marshal the collective knowledge
Growing interdependence latory and fiscal treatment in producing and a commitment to make the project
Consuming countries and producing countries. As markets are liberalized, work,” Dingle said.
countries need to recognize and man- regulators and governments need to re- All of the various stakeholders must
age their growing energy interdepend- main patient and allow the market to work together to satisfy future world
ence and the important role that each function even when prices are volatile,” gas demand, he said. ✦

CERA: Infrastructure critical to US natural gas supply

Paula Dittrick Chairman Pat Wood III told Cambridge • Permitting and construction of ad-
Senior Staff Writer
Energy Research Associates’ annual con- ditional LNG receiving terminals.
ference Feb. 16. • Rocky Mountain pipeline expan-
The availability of natural gas sup- Wood listed four areas of vital infra- sions and the creation of new capacity
plies to meet future demand hinges up- structure in the following order: to meet demand.
on infrastructure development, US Fed- • Construction of a gas pipeline • Construction of additional gas
eral Energy Regulatory Commission from Alaska’s North Slope to the Lower storage.
48 states. The Alaska gas pipeline, estimated to

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GENERAL INTEREST
cost $15-20 billion, will prove to be twosies’ after that,” he said. fast-track approval to Cheyenne Plains
the largest single civil engineering Wood said the success of each the Gas Pipeline Co., a unit of Houston-
project in the US, Wood said. He be- 40 receiving terminals proposed for based El Paso Corp., for a 380-mile nat-
lieves that it will not be operational un- North America will hinge in large part ural gas pipeline from El Paso’s
til 2012, at the earliest. upon how well the project developers Cheyenne Hub south of Cheyenne,
In October 2004, Congress author- communicate with the communities in Wyo., to Greensburg, Kan. (OGJ On-
ized construction of the pipeline and which the terminals would be built. line, Feb. 24, 2004).
selected tax provisions. This month, “We’ve got to look at the environ-
FERC issued its open-season rules for mental issues and safety concerns. We Storage
the pipeline. Wood said FERC took steps can balance the need for gas supplies “As we begin to ride the peaks and
to ensure that all producers have access with the need to protect our citizenry,”valleys of world natural gas prices, gas
to the pipeline regardless of which oil he said. storage in our country will become in-
companies ultimately build the system. creasingly important for the price arbi-
Rocky Mountain gas trage benefits,” he said.
LNG The Rocky Mountain region is in the Full storage fields and adequate
The nation’s developing LNG indus- process of overtaking the Gulf of Mexi- pipeline capacity will ensure stability,
try is facing its “critical years,” Wood co as the top US gas-producing area, he which will help guarantee that “volatil-
said at the Houston conference. “I do said. ity in this weather-driven commodity is
expect that we will see some additional “The importance of getting new reasonable and can be managed well by
LNG plants on either coast in our supplies online quickly from that re- risk managers,” Wood said.
country as well as in our neighbors’ to gion, which can go both to the west Construction of additional storage
the north and south.” and to the east, has increased,” Wood and pipeline capacity to meet market
He anticipates that at least eight new said of the Rockies. FERC has respond- demand “will go a long way toward
receiving terminals will be constructed ed to this need by accelerating its buffering the price that consumers pay
in the US, Canada, and Mexico by pipeline approval process. for natural gas and enhancing customer
2010. “Then, it will be ‘onesies, For example, FERC recently granted confidence,” he added. ✦

Refiners of heavy, high-sulfur crude face prosperous year

Bob Tippee Worldwide, he noted, “We have very Regional views
Editor
little light crude oil coming on Agreeing with O’Malley that
stream.” prospects are good for refiners for at
Refiners face several prosperous He expects 2005-07 to be “extraor- least several years, David Waring, head
years, especially those able to convert dinary years for refining” but warned: of European energy for Deutsche Bank,
heavy, high-sulfur crude to light prod- “$100[/bbl] crude oil will derail it.” said a “buyer’s market for refineries”
ucts, industry representatives said at a He pointed to a “countertrade” de- has developed in Europe because the
conference in London. veloping in the Atlantic Basin, with the wide refining margins of 2003-04
Population growth and an increase US exporting diesel to Europe and Eu- reawakened investor interest.
in per-capital energy consumption in rope exporting gasoline to the US. Waring said as many as 18 refineries
rapidly developing China and India will Refining capacity needs to grow, but might change ownership during the
keep demand strong, said Tom O’Mal- construction faces resistance in the US next 18-24 months through initial
ley, chairman of US independent refiner and Europe. “We went from ‘not in my public offering spin-offs, planned sales,
Premcor Inc. neighborhood’ in terms of construction and disposals by companies consider-
Other speakers at a Wood Mackenzie to ‘not anywhere in my country’ in ing European facilities to be noncore
refining seminar held in conjunction terms of construction,” O’Malley said. assets. Europe, he noted, has a surplus
with the Energy Institute’s International Construction, he said, is likely in China of gasoline and needs middle distillate
Petroleum Week assessed refining and India, while expansion of existing because of strong growth in demand
prospects in specific regions. plants is all that will occur in the US for diesel.
“The biggest winners in the refining and Europe. Ferenc Horvat, refining and market-
industry will be those companies that Asked about energy policy and the ing managing director of Hungary’s
can deal with very heavy and high-sul- likelihood of an ethanol mandate for MOL Group, said prospects for demand
fur crude oil,” O’Malley said, adding gasoline sold in the US, O’Malley said growth in Central Asia are “excellent”
that his company’s high-conversion re- President George W. Bush “has enough because of economic growth, accession
fineries make twice to three times as power now to push it through.” And he of some of the countries into the Euro-
much money running heavy crude than added, “Ethanol is truly one of the pean Union, and growing ownership of
it does with higher quality feedstock. dumb things to do.” automobiles.

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Refiners in the northern Central Satvinder Roopra, vice-president, fineries will increase by 300 million
Asian countries are generally well along downstream oil, for Wood Mackenzie, tonnes/year during the period from a
in privatization and have invested to oil demand will rise by more than 50% combination of increased utilization
meet EU product specifications. In the by 2015, with China and India ac- rates, capacity creep from moderniza-
region’s southern countries, refinery counting for 64% of the growth. tion and upgrades, and planned capaci-
utilization rates are low, and companies Roopra said the crude slate in Asia- ty additions accounting for about half
face the need to make heavy invest- Pacific will change from 55% sour-45% of the increase.
ments to raise product quality while sweet at present to 68% sour-32% Also during the period, he said,
plagued by poor refining economics sweet in 2015, requiring major up- “significant deficits of all products
and low working capital. grading and construction. He projected [will] emerge,” especially gas oil and
In the vital Asia-Pacific region, said that product supply from regional re- diesel. ✦

Iraq seeks investment but nixes reserves privatization

Eric Watkins “In past decades, Iraq was plagued “Iraqi oil policy aims at consolidat-
Senior Correspondent
with wars, sieges, and the misuse of its ing the oil reserves and at increasing
oil wealth,” al-Ghadban said in the Ara- the production and export capacity of
Iraqi Oil Minister Thamir al-Ghad- bic Asharq al-Awsat newspaper pub- crude oil and gas, a fact that would in-
ban claims that his country can boost lished on Feb. 15. crease the country’s revenue and finan-
its oil production level from its current “We, the people concerned with oil cial resources,” he said.
2.1 million b/d to 6 million b/d, aided affairs, have many dreams, which are “There are axes for developing the
by Iraqi, Arab, and foreign investments. well-studied plans based on rigorous oil sector. The first axis could be sum-
But he ruled out any privatization of scientific foundations. Now we hope to marized in drawing up an integrated,
the “extraction sector,” saying it was implement these plans, because the war comprehensive plan that proceeds in
out of the question at the moment. era has passed,” he said. the direction of expanding the volume

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of oil and gas explorations in Iraq,” while the qualified Iraqi personnel con- to the ministry.”
said al-Ghadban. “Iraq is one of the tinue to manage 100% of this process.” In such cases, he said, “the role of
oldest oil countries in the region, but it Al-Ghadban said, “As for the second the ministry will be to plan, to specify
is the least explored country. The west- direction, it should proceed in parallel the projects, and to sign the long-term
ern desert, as a mere example, consti- with the first one, and Iraqi, Arab, and contracts with the investors to provide
tutes one third of the area of Iraq. The foreign investments will be utilized to the raw material, the oil or gas. The in-
studies prepared by Iraqi and foreign develop the explored oil fields, which vestor will manage the project for a
companies during the 1990s show that number more than 30. Some of these period of time or build and manage
this is a promising area and could be fields are classified as ultragiant fields, without the condition of handing over
rich with light crude oil,” he said. and they will be developed to add pro- the building.
“Furthermore, the Al-Jazirah region, duction capacity of more than 2.5 mil-
between the Tigris and the Euphrates lion b/d of new oil.” Reserves off limits
[rivers] in western Iraq, next to the The Iraqi minister added that, “As for the extraction sector, that is,
Iraqi-Syrian border, is also a very “There are various formulas of cooper- dealing with the oil and gas reserves,
promising region,” he said, adding, “As ation. They could be used individually which are ‘assets,’ privatization is com-
for the basin of the Tigris and the Eu- or in groups, but choosing one formula pletely out of question at the moment,”
phrates, there is major exploration over another should be made through he said.
work that will be carried out, and this the new interim government and the The minister explained that the
will increase the oil and gas reserves.” elected National Assembly.” Iraqi, Arab, and foreign private sectors
Al-Ghadban said that production of The minister saw no problem with could develop the fields with the agree-
as much as 6 million b/d of oil “is a Iraq’s intention to sign contracts with ment of the Oil Ministry, and according
strategic aim that we will work to fulfill foreign and international companies to mechanisms to be agreed, namely
within 5-6 years from the moment we well known in oil investment or with “service contracts, repurchase contracts,
start.” the privatization of some oil projects. production-sharing contracts.”
“There is nothing wrong with the However, these mechanisms would
Oil policy focus private sector playing a wide and ex- have to be agreed by the coming gov-
In this sector, he said, the general tensive role in the oil industry,” he said. ernment and the elected National As-
features of the oil policy will focus on “We believe it is neither important, nor sembly because of the importance of
two directions. necessary for the Oil Ministry to man- the extraction sector to the natural
“The first is that the Oil Ministry, age the petrol or liquid oil stations. wealth, being the property of the peo-
and perhaps in the future the Iraqi Na- “Therefore, we are completely agree- ple and because of its importance to
tional Oil Co., will increase the current- able to opening the field to the private the Iraqi economy.
ly available production capacity to 3.5 sector to build storage depots, refiner- Al-Ghadban observed that the pri-
million b/d,” he said, adding, “This ies, or gas laboratories according to vate sector could play other roles, for
will be achieved by relying on the min- various techniques that are scientifically example, offering various oil services,
istry’s effort and finances and by utiliz- known as ‘BOT’ or building and own- such as drilling wells, civil engineering,
ing foreign expertise through regular ership techniques, and then at the end and the services needed for the drilling
‘engineering and executive’ contracts, of the period hand over the installation operations. ✦

Japanese energy policy focuses on supply security

Japan is working on several fronts to ward importing oil from Russia and Japan imported 59.1 million tonnes
enhance energy security and reduce the Iran as alternative sources of oil supply. of LNG in 2003, about 75% of it from
country’s reliance on oil from the Mid- It also is making upstream invest- Asia-Pacific suppliers and 23% from the
dle East. ments overseas, reestablishing a rela- Middle East.
But that dependency is unlikely to tionship with Middle East oil exporters, It imported 87% of the 4.28 million
change much anytime soon, said ana- and helping other southeastern Asian b/d of oil it consumed in 2003 from
lyst Tomoko Hosoe in a January report countries develop strategic stockpiling, the Middle East, more than half of that
by Fesharaki Associates Consulting & Hosoe said. from the UAE and Saudi Arabia.
Technical Services Inc. (FACTS Inc.), Japan’s Ministry of Economy, Trade,
Honolulu. Japan’s energy policy and Industry (METI) plans to lower oil
Japan is trying to strengthen its nu- Japan’s June 2004 Basic Energy Poli- imports to 46% of total supply from
clear power infrastructure and to im- cy emphasizes increased use of natural the current 50% by 2010. It plans to
port more LNG and has developed a gas and other alternatives to oil while do so by lifting market shares of other
petroleum stockpile system, initiated an retaining nuclear energy as a core ener- energy sources: gas to 15% from 13%,
environment tax, and is working to- gy supply. nuclear power to 14% from 13%, and

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other energy to 3% from 2% while JAPAN’S PLANNED POWER PLANTS* Table 1

coal’s share remains at 18%. Revised Previous
Unit Capacity, start- planned
Oil supply diversity Name of station Location no. Mw up date start-up

Japan is negotiating with Russia to Nuclear power plants

Fukushima Daiichi Fukushima 7 1,380 Oct 2010 Oct 2009
receive oil via the proposed Nakhodka Fukushima Daiichi Fukushima 8 1,380 Oct 2011 Oct 2010
pipeline project and with Iran for de- Higashidori Aomori 1 1,385 2012 2011
Higashidori Aomori 2 1,385 After 2014 After 2011
velopment of Azadegan oil and gas Coal-fired power plants
Hitachi Naka Ibaraki 2 1,000 After 2010 After 2010
field, with Japan taking a portion of the Hirono Fukushima 5 600 July 2016 July 2016
production, Hosoe noted (OGJ, Jan. 24, Hirono Fukushima 6 600 2010 2010
Gas-fired power plants
2005, p. 26). Futtsu Chiba 4 1,521 July 2008- July 2008-July
If built, the 4,130-km Russian July 2010 2010
Kawasaki Kanagawa 1 1,500 July 2007- July 2007-July
pipeline would originate at Tayshet, July 2009 2009
Kawasaki Kanagawa 2 1,500 After 2014 After 2011
north of Lake Baikal in Siberia, instead
of the previously discussed Angarsk. Ca- *As of March 2004.
Source: Tokyo Electric Power Co. (Tepco)
pacity of the pipeline will likely be 1.6
million b/d (OGJ Online, Jan. 17,
2005). It would extend to Russia’s companies, including a 16% stake of their hopes in seeing Japan commer-
Nakhodka Pacific coast port, although Japan Petroleum Exploration Co. cially engage Iran, to diversify energy
China wanted the pipeline to go direct- (Japex) in a $295 million initial public sources for greater supply security.
ly to Daqing first. A smaller branch line offering and 18% of its total 54% Meanwhile Inpex is hoping to find an
from the main pipeline to Daqing is stakes in Inpex in a $1.5 billion IPO. international partner.” Discussions are
still a possibility if oil supply is suffi- Inpex, with a good business outlook under way with several potential part-
cient for both markets. and a large market capitalization, has ners, he said.
Whether pipeline construction will been a successful JNOC-funded up-
proceed, however, and how soon it stream firm, with the core of its activi- Nuclear power policy
could be built depends on how much ties in Indonesia. The company also is Although nuclear energy remains
Japan is willing to invest, who will in- the project operator of Iran’s Azadegan central to Japan’s energy policy because
vest in the upstream exploration and field project (OGJ Online, Sept. 14, of the country’s obligation to reduce
production, and whether building a 2004). emissions of greenhouse gases under
branch to Daqing is a realistic option. Under a buy-back contract, Inpex the Kyoto Protocol, Hosoe said, future
In addition, project costs have sky- holds a 75% share of Azadegan, with nuclear growth may be limited.
rocketed, with construction of a Iran’s Naftiran Intertrade Co. holding The country has 52 nuclear reactors
Tayshet-Nakhodka pipeline now esti- the remaining 25%. and 3 units under construction—one
mated at $11-16.2 billion, nearly three Azadegan development is seen in to start up this month, another in July,
times the cost of Japan’s originally pro- Japan as risky for a private company, and a third in March 2006. A fourth is
posed Angarsk-Nakhodka pipeline. Hosoe said. planned for start-up by fiscal 2010.
Development of Iran’s Azadegan “From the beginning, the Azadegan METI plans to build six more by 2030.
field—which could produce 50,000 development has been Japan’s national Earlier, Japan had planned to build
b/d of crude oil by July 2007, 150,000 project; thus, it was not purely a matter 9-12 nuclear reactors by 2010. Projects
b/d by July 2008, and a final 260,000 of economics,” Hosoe said. “Japanese have been postponed by a slowdown in
b/d by March 2012—also faces chal- politicians and bureaucrats continue electricity demand, intensifying cost
lenges (OGJ Online, Sept. 14, competition from gas-fueled,
2004). combined-cycle units under
Japan’s overseas upstream JAPAN’S 10 NATIONAL STORAGE BASES* Table 2 industry deregulation, and
investment policy is to partic- Storage Volume growing public opposition
ipate—through state-owned capacity stored to nuclear energy following
Base name – Million kiloliters – Storage type
Japan National Oil Corp. a series of accidents, and
Tomakomai-Tobu 6.40 5.42 On-ground tank
(JNOC)—in exploration and Mutsu-Ogawara 5.70 4.92 On-ground tank controversy over plant main-
development overseas for a Akita 4.50 3.73 In-ground tank tenance data cover-ups,
Kuji 1.75 1.67 Underground cavern tank
percentage of production. Fukui 3.40 2.86 On-ground tank Hosoe said.
JNOC, formed in 1967, Shirashima 5.60 4.75 Floating tank Japan’s two largest electric
Kikuma 1.50 1.42 Underground cavern tank
will be dissolved by March Kamigoto 4.40 3.43 Floating tank utilities, Tokyo Electric Power
Kushikino 1.75 1.68 Underground cavern tank
under Prime Minister Ju- Shibushi 5.00 4.38 On-ground tank Co. (Tepco) and Kansai Elec-
nichiro Koizumi’s major re- ––––– ––––– tric Power Co. (Kepco), have
Total 40.00 34.25
structuring plan for 77 state- frozen or delayed construc-
run organizations. It has been *As of Feb. 28, 2004. tion plans.
Source: Fesharaki Consulting & Technical Services Inc. (FACTS Inc.)
selling the assets of its group Tepco, which owns 38%

Oil & Gas Journal / Feb. 28, 2005 33

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WATCHING THE WORLD

Eric Watkins, Senior Correspondent
of Japan’s total nuclear power genera-
tion capacity, plans to add two 1.38-Gw
nuclear units to its existing 4.70 Gw
Confusing times Fukushima Daiichi nuclear power plant.
“However, Tepco has already delayed
linger in Sudan these plans several times and is unlikely
to build them anytime soon,” Hosoe
said (Table 1).
Fukui prefecture, which contains 15
he recent signing of an agree- alone had the power to grant oil nuclear power stations, plays a key role
T ment to end 2 decades of civil
war in Sudan could bring the op-
concessions.
“The energy and mining ministry
in Japan’s nuclear policy. It also is
where Japan’s $6 billion experimental
portunity for millions of people to is the only body authorized to grant fast-breeder reactor, Monju, sits. Opera-
return home and begin new lives, as oil exploration contracts in the Su- tions at Monju were suspended because
well as a chance for investors to dan, and we have not done so [for of a sodium leak in 1995 after initial
make money in a needy country White Nile],” said a government start-up in April 1994.
with large oil reserves. spokesman. All of Kepco’s 11 nuclear power
The Comprehensive Peace Agree- White Nile responded the next plants are among those in Fukui prefec-
ment was signed in Nairobi, Kenya, day by claiming that its deal with the ture, where public opposition to nu-
on Jan. 9 by the Sudanese govern- soon-to-be-formed government of clear power plants remains strong be-
ment and the rebel Sudan People’s South Sudan (formerly the SPLM/A) cause of an accident at the Mihama
Liberation Movement/Army for exploration rights to the block plant. The company has halted indefi-
(SPLM/A). would hold. nitely plans to begin using mixed oxide
As a result, some experts believe That could be true. But even com- fuel in 2007.
that oil and gas companies will ments by SPLM/A leader John
move quickly to expand Sudan’s oil Garang leave one to feel a little un- Planned environment tax
production from the 345,000 b/d easy. Revision of the nuclear policy will
recorded in June 2004. “Under the present arrangements, make it difficult for Japan to meet the
The country has reserves of 635 we are part of the central govern- target set by Kyoto of a 6% cut in car-
million bbl, much of which ment, and at the same time the gov- bon dioxide emissions by 2012.
couldn’t be accessed during the ernment of southern Sudan enjoys The Ministry of Environment in No-
war due to the fighting. complete self-rule,” Garang told the vember 2004 drafted plans for an envi-
Arabic Asharq al-Awsat newspaper on ronment tax to be levied on electricity
Issues remain Feb. 13. and most fossil fuels, including oil,
But a number of issues remain to coal, and gas beginning in 2005 to cut
be settled before the oil industry Self-rule energy consumption and encourage a
can be certain of its prospects in the Garang said the government of CO2 emissions reduction of 9.5% by
African country. southern Sudan will have its own 2010.
Indeed, as the experience of one sources of revenues, including “50% The initiative would tax the con-
British company already shows, the of the oil revenues and 50% of the sumption of most fossil fuels at 2,400
civil war may still be under way nonoil revenues that will be collected yen/tonne of carbon contained in the
when it comes to signing deals in in southern Sudan” as well as its own fuel, with the revenues used to facilitate
Sudan. tax authorities and the right to ask wider use of wind power and solar en-
British-based oil exploration firm for international support. ergy and to promote the public’s use of
White Nile, whose stock prices have “We are in a situation where there energy-saving equipment.
soared since being listed in early is a government that enjoys self-rule, However, the proposal faces strong
February, said on Feb. 16 it had has its own independent army, par- opposition from METI and major in-
signed a deal with “the government ticipates in the central government, dustry associations, which contend the
of South Sudan” for a 60% stake in and has its own resources.” tax would be ineffective because energy
the 67,500 sq km Block Ba, which These are very confusing times in taxes are already too high. The oppo-
contains part of the key Muglad many places, and it will doubtlessly nents also warn that additional taxes
basin production area. take a few days to get to the bottom could slow economic recovery and sti-
But the Sudanese government in of the situation in the Sudan. Much fle industrial activity.
Khartoum said on Feb. 21 that it depends on the outcome—not least It is unlikely that the tax will be im-
whether White Nile will soon turn plemented before 2006, Hosoe said,
blue. ✦ and then only if such issues can be re-
solved.

34 Oil & Gas Journal / Feb. 28, 2005

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GENERAL INTEREST
Petroleum stockpiling manages the national stockpiles of oil fined products. This requirement, along
Storage of LPG and strategic petrole- and LPG, builds LPG stockpiling facili- with stringent product-specification
um reserves in Japan—private and pub- ties, and prepares for their operation. It regulations, makes Japan a difficult
lic—aim to protect against energy short- also releases stockpiled oil or LPG on or- market to enter.
ages or disruptions to supply from the ders of the Japanese government. Storage requirements apply to LPG,
Middle East. The government, through In addition, all private oil companies too. The plan is to complete by 2010
JNOC offshoot Japan Oil, Gas & Metals and importers of petroleum products Japan’s storage of LPG equivalent to 80
National Corp. (Jogmec), maintains na- are required to hold products or crude days’ imports—30 days, or 1.5 million
tional petroleum stockpiles at 10 nation- oil stocks equivalent to 70 days of re- tonnes, by the government, and 50
al oil storage bases (Table 2). Jogmec days by the private sector. ✦

BLM’s 2006 budget includes increased user fees

Nick Snow in Washington, DC. lems in the process,” Bremner said.
Washington Correspondent
“We had been hearing signals from “Also, the industry pays for multiple
various conversations with officials at surveys and [National Environmental
Oil and gas producers would pay the two agencies the last several Policy Act] documentation by outside
$10.8 million in user fees, including months,” he said. contractors. Now, the BLM proposes a
$9 million in permit processing Sen. Jeff Bingaman (D-NM), the fee so it can review documentation
charges, under the Bureau of Land Senate Energy and Natural Resources we’ve already paid for,” the IPAMS offi-
Management’s proposed fiscal 2006 Committee’s chief minority member, cial maintained. “Unofficially, we’re al-
budget. The fees would more than off- also raised the point at the committee’s ready paying for quite a bit of work
set a slightly reduced appropriation and Jan. 24 natural gas conference, accord- outside what BLM does. Now, it’s ask-
allow the Department of the Interior ing to Fuller. “We knew it was in play ing us to pay for what it does inside
agency to increase the budget for its as a concept. Now, it’s a reality,” the the program.”
energy and minerals programs by $9.1 IPAA official said.
million to $117.6 million. That doesn’t mean Congress will ap- Interest still high
BLM said the additional money prove it, suggested Andrew A. Bremner, Neither association official expected
would come from a proposed rulemak- government affairs director at the Inde- the prospect of higher leasing and per-
ing that would increase current charges pendent Petroleum Association of mitting expenses to dampen industry
“to a level that more closely reflects the Mountain States in Denver. “It’s unfor- interest in Rocky Mountain federal oil
cost of providing these services.” tunate that the Office of Management and gas inventories, however. Fuller
In addition to the permit processing and Budget continues to propose cost pointed out that federal land in the
charges, the agency expects to raise recovery on the oil and gas program,” West remains one of the most cost-ef-
rental rates for oil and gas leases. he said. He also questioned the idea fective areas in which to develop oil
“The estimated revenue from addi- that BLM needs to charge permit-pro- and gas because so many reserves re-
tional user fees assumes continuing cessing fees to cover operating costs. main there. The attraction has increased
high demand for oil and gas lease The proposed budget projects $173.1 as coalbed methane production has
transactions and drilling permits,” it million in rents and bonuses and more grown, he said.
said. By combining these revenues with than $2.48 billion of royalties from a “I would expect to see a high level
the slightly reduced appropriation, BLM federal onshore oil and gas program of interest continue there. But its suc-
expects to increase its energy and min- that costs $117.6 million to operate. cess will depend on BLM’s ability to ex-
eral capability in the coming fiscal year, “That’s a more than 2,900% return. ecute the permitting process,” said
“allowing more timely processing of So in many respects, we believe our in- Fuller. “The efforts to try and move for-
energy leases and permits.” dustry’s costs are more than taken care ward in that have met with mixed suc-
of,” Bremner said. cess. Internally, the administration has
No surprise BLM’s proposed budget also is short done a lot to try and improve its ability
The proposals to increase oil and gas of specifics on how it would use the to process permits. Externally, that’s be-
lease revenue did not catch producers extra money it plans to raise, he con- ing challenged by groups who don’t
by surprise. tinued. want to see oil and gas drilling permits
The US Minerals Management Ser- “Over the past few years, appropria- issued at all.”
vice also plans to impose new permit tions have increased for particular field For a producer, Fuller said, “how ag-
processing fees and increase rental fees, offices as well as the program overall. gressively you go into federal reserves
noted Lee O. Fuller, vice-president of BLM has put money into tackling the will depend on how certain you believe
government relations at the Indepen- backlog of permits. But I don’t know if the process will be in delivering the re-
dent Petroleum Association of America it has a specific plan to address prob- source.” ✦

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EXPLORATION & DEVELOPMENT

PetroKazakhstan Inc.,
Calgary, reported several ex-
PETROKAZAKHSTAN’S PRODUCTION AND RESERVES*
Third
ploration successes on its quarter –––––– Reserves ––––––
blocks in the South Turgai 2004 Proved+
production, Proved probable
basin of central Kazakhstan. Property b/d ––––– million bbl –––––
Analysis of 3D seismic Kumkol S. 48,126 58.4 69.8
data led to discovery of oil Kumkol N. 36,703 74.1 97.4
S. Kumkol 22,400 39.3 46.6

PetroKazakhstan
in Jurassic channel sands E. Kumkol 752 7.9 11.7
below Aryskum field on the Kyzylkiya 11,727 23.1 35.3
Aryskum 10,659 32.9 47.7
Aryskum license (see map). Maibulak 1,951 8.1 14.0

exploration finds The first well, Aryskum-

401, a former gas injection
well deepened to 1,062 m,
Akshabulak
Nurali
Aksai
Expl. licenses
22,304
1,684
267
386
96.1
4.6
0.3
––
143.5
9.9
1.3
––

more oil in
N. Nurali 827 3.8 12.8
cut 6.5 m of net pay and ––––––– ––––– –––––
Total 157,786 348.6 490.0
produced 1,320 b/d of oil.
*Reserves as of 1-1-2004.

South Turgai basin

Aryskum-402, located to Source: PetroKazakhstan Inc.
test the same channel sand,
tested 1,600 b/d from 4 m
of net pay. of net pay and produced 420 b/d of oil
Aryskum-403, drilled to 1,159 m, after frac. KYZ-38 went to 1,553 m,
yielded 1,040 b/d from 21 m of net cut 5 m of net pay, and swabbed 345
pay in a separate channel sand. A fourth b/d after frac.
well cut 6 m of net reservoir and The wells are 3.5 km and 5 km, re-
flowed gas on test, and a fifth well cut spectively, from the successful KYZ-34,
12 m of net pay with oil shows and on the boundary between Kyzylkiya
was under test. Another appraisal well field and the Kolzhan license.
was to be drilled in January. The company plans aggressive ap-
PetroKazakhstan drilled five wells, all praisal in 2005.
of which encountered hydrocarbons, An exploration well on the Akshabu-
on the Kolzhan license it acquired in lak license yielded 1,620 b/d of oil
the first quarter of 2004 north of from a new channel sand.
Kyzylkiya field. PetroKazakhstan became operator of
KYZ-32, drilled to 1,664 m, cut 8 m the Doshan and Zhamansu blocks in
2004 with 75%
equity interest. It
P ETROKAZAKHSTAN'S TURGAI BASIN HOLDINGS Fig. 1
acquired 714 km
of 2D seismic data
64° 65° 66° 67°
on the blocks,
Karaganda which total more
47° 100% company owned field than 1 million
KAZAKHSTAN acres.
Maibulak Caspian
Sea
Aral
Area The D-10 well
Sea 50% company owned field
Tblisi

shown on the Doshan

(MG 260 D-1)
Kolzhan (MG 952) Kumkol N. block, south of
E. Kumkol
Aryskum
N. Nurali
100% company owned exploration Aryskum field,
S. Kumkol Double 20" & 28" oil
Kumkol S. pipeline to Karakoin
went to 2,350 m.
lin
e
Kyzylkiya injection, then to
Shymkent refinery 75% company owned exploration Reservoir thickness
pe m
M
pi 7 k
17
Doshan
totaled 190 m, and
KA " x Nurali
46°
16 (MG 951-D)
100% awarded subject to contract
oil and gas zones
To Dzhusaly Aksai were recorded
Akshabulak while drilling but
Noncompany acreage
were interpreted as
being wet. Two
Oil pipeline more exploration
0 25 Km
0 15.5 Miles Zhamansu (MG 951-D) wells are planned
in 2005.
Source: PetroKazakhstan Inc. Of four wells
drilled on the

36 Oil & Gas Journal / Feb. 28, 2005

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Zhamansu block in an unexplored area fields will start with the acquisition of 2003. Late in calendar 2004 it was pro-
southeast of PetroKazakhstan’s main 400 km of 2D seismic data this year. ducing from 22 wells, Niko said. ✦
fields, two wells were dry and two en- The company reported 490 million
countered hydrocarbon sands but did bbl of proved and probable reserves at Argentina
not produce at commercial rates. The Jan. 1, 2004 (see table), and the number
company will evaluate 32 more leads grows to 725 million when the possible Connacher Oil & Gas Ltd., Calgary,
and prospects. category is added. It told analysts in late said its 61% subsidiary Petrolifera Pe-
Exploration on the 1.9 million acre 2004 that it has identified 930 million troleum Ltd. launched a bid to raise up
Karaganda license north of the main bbl of recovery potential. ✦ to $7 million for Latin American opera-
tions.
Proceeds of the offering were to be
Denver basin Niobrara gas hunt kicks off used to fund part of Petrolifera’s ex-
pected $6.2 million in 2005 capital
Berry Petroleum Co., Bakersfield, Berry identified more than 150 spending in Argentina where it holds
and Bill Barrett Corp., Denver, plan to drilling locations on 80 acres and 500 the Puesto Morales/Rinconada conces-
explore and develop shallow gas in Cre- more locations on 40-acre spacing in sion and in Peru where it is negotiating
taceous Niobrara in the Denver-Jules- the low geologic risk play. Pipeline to acquire two licenses. Petrolifera is
burg basin. takeaway capacity from the region has near completing a 144-sq-km 3D seis-
Berry will acquire a 50% working recently grown, and the gas brings mic survey on the Argentine concession
interest in 345,000 prospective acres in 85¢/Mcf less than the Henry Hub in- in the Neuquen basin and plans to drill
Colorado, Kansas, and Nebraska from dex, the company said. 5 exploratory and infill wells and work
Barrett for $5 million, with closing set The Berry-Barrett acreage is immedi- over several wells this year.
for early February. ately east of the lands acquired from J- The Peru properties are 2 million
Berry in January completed the ac- W Operating. acre Block 106 surrounding giant Cor-
quisition from private J-W Operating Berry and Barrett plan to evaluate rientes oil and gas field in the Maranon
Co., Dallas, of a 52% working interest the combined acreage, with Barrett basin and 3.2 million acre Block 107 in
in 130,000 acres and more than 650 conducting seismic programs and the Ucayali basin northwest of the
producing gas wells in 20 fields in Yu- drilling the first wells. Berry will oper- Camisea gas-condensate fields.
ma County, Colo., in the heart of the ate the wells once production is estab-
Niobrara play, for $105 million. The lished. Egypt
deal also included 100% ownership in Drilling of the obligatory first two
certain gas compression and transporta- test wells is to start in the first quarter Burren Energy PLC, London, bid
tion assets. of 2005. Berry pegs 2005 Niobrara successfully for two exploration licens-
The assets acquired from J-W Oper- spending at $2-5 million to drill 60 es on and off Egypt.
ating are producing 8.8 MMcfd of gas, wells and rework 25 wells. The compa- Block 1, North Lagia, covers 1,457
and Berry estimated proved reserves at ny will strive to cut operating costs sq km onshore in the northern Gulf of
87 bcf. from $1.50/Mcf. ✦ Suez basin. The block surrounds the
Asl, Ras Sudr, and Ras Matarma produc-
tion licenses operated by state General
Niko chases oil in Hazira gas field off India Petroleum Co. Egyptian General Petrole-
um Corp. offered the block.
Niko Resources Ltd., Calgary, plans not be accessed from shore or from a Burren also won Block 2, North
to further delineate a hefty oil pay zone 1.5-km causeway built from shore to a Hurghada Marine, covering 242 sq km
at its Hazira gas field just off western land-based drilling platform in shallow in the gulf along trend with the Zeit
India in the Cambay basin. waters of the Gulf of Cambay. Bay and Geisum oil producing areas.
The company said it has successfully Niko, operator with 33.33% work- The block, offered by Ganoub El-Wadi
tested the oil zone in five wells and can ing interest in the 50-sq-km gas field Holding Petroleum Co., is northwest of
identify it on logs in nine wells in the 25 km southwest of Surat, and partner Seabird gas and oil field.
field. It first encountered the zone in Gujarat State Petroleum Corp. Ltd. left Burren has begun exploring the
the A-2 appraisal well in 2002. space on the platform for future oil 4,300 sq km East Kanayis Block 7
The most recent penetration, Hazira production. Niko hopes the next three awarded last year in the western desert
OS-3, gauged oil at the rate of 6,000 wells from the platform will help de- and plans exploration drilling in mid-
b/d with 442 psi pressure on a 1.2 in. termine areal extent and reserves in the 2005. The company’s working interest
choke from a formation at 1,200 m. oil zone. Meanwhile, it will complete is 100% in all three blocks.
It is the third well drilled from the OS-3 as a gas well.
platform that was installed in July 2004 Hazira field averaged 124 MMcfd of Sri Lanka
to develop portions of the even shal- gas in the fiscal year ended Sept. 30,
lower Miocene-aged gas pays that could 2004, up from 105 MMcfd in fiscal TGS-Nopec Geophysical Co. and Fu-

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EXPLORATION & DEVELOPMENT

gro Geoteam began acquiring data in a on the flank of the structure, tested at Gulf of Mexico
2D multiclient survey in the Gulf of 550 b/d of oil in December 2004 and
Mannar between Sri Lanka and India. was shut-in for long-term test. Re- TGS-Nopec Geophysical Co., Hous-
The 4,750 line km survey will com- opened Jan. 26, 2005, it stabilized at ton, doubled to 8,400 sq km the initial
plement data TGS-Nopec collected in 710 b/d. size of its Deep Resolve multiclient 3D
2001 in the Mannar basin. The survey The group spudded a fourth base- survey aimed at Gulf of Mexico deep
culminates 4 years of work by TGS- ment well, KHA-404. shelf exploration targets. The project,
Nopec and the government, said Titus Block interests are Total Yemen SA, for which the contractor secured fur-
Jayarwardene, Sri Lanka director general Occidental Yemen Ltd., and Comeco Pe- ther client funding, covers parts of the
of petroleum resources. troleum Inc. 28.57% each and Kuwait Ship Shoal, South Timbalier, Grand Isle,
Foreign Petroleum Exploration Co. and Ewing Bank areas off Louisiana.
Venezuela 14.29%. SOCO Petroleum PLC, London, Delivery of processed, prestack time
holds 58.75% interest in Comeco. migrated data starting in January 2005.
The Vinccler Oil & Gas CA unit of Acquisition of the enlarged project is to
PetroFalcon Corp., Carpinteria, Calif., Newfoundland be completed in July 2005.
spudded the LV-9 well in La Vela field
in mid-January. Vulcan Minerals Inc., St. John’s, plans North Dakota
Projected TD is 10,941 ft. The well to drill as many as four wells in 2005
has several prospective reservoirs, in- in the nonproducing Bay St. George North Finn LLC, private Wyoming
cluding the Agua Clara reservoir that basin in western Newfoundland. company, and American Oil & Gas Inc.,
Vinccler successfully recompleted in the The company has several prospects Denver, plan to spud a 4,500-ft wildcat
LV-8X well in November 2004. on 236,000 acres and is the basin’s to Mississippian Mission Canyon in
Vinccler plans to drill as many as 10 largest land holder. McHenry County.
wells seeking gas in coastal La Vela and The Flat Bay 1 and 2 wells have dis- The well on the 10,000-acre South
Cumarebo oil and gas fields and sur- covered a large-scale active petroleum Glenburn oil prospect is to cost
rounding acreage on the 400,000-acre system in the basin, the company said. $350,000 to casing point. The location
East Falcon Block east of Coro. It has Flat Bay-1, drilled to TD 286 m in 1999 is 19 miles southeast of Glenburn field
Pride International Rig 528 under con- and not stimulated until mid-2004, had and 35 miles southeast of Wiley field,
tract for 1 year. The gas would be deliv- shows of 34° gravity oil with less than each of which has produced more than
ered into Petroleos de Venezuela SA’s 1% sulfur at 195 m. Residual frac sand 17 million bbl of oil from Mission
Interconexion Centro-Occidente (ICO) has caused pumping problems. Vulcan Canyon. The two companies have a
pipeline. recently drilled Flat Bay-2 about 1.5 km strategic operating alliance. Working in-
Vinccler also launched an 86 line east. terests in the prospect are American
km seismic survey to pinpoint develop- The focus until now has been on the 87.5% and North Finn 12.5%.
ment locations and prospects on the Fischells Brook member of the Car-
block. boniferous Spout Falls formation, but Texas
Vinccler last fall negotiated a con- 2005 drilling will test other potential
tract to sell up to 249 bcf of gas from reservoirs on the Storm and Hurricane West
the two fields to Pdvsa/ICO for a net prospects, Vulcan said. Anadarko Petroleum Corp., Houston,
$1.33/Mcf for transport to the said it drilled 15 wells, including one
Paraguana Refining Complex. Northwest Territories exploration well, in 2004 in an ex-
panding tight sands gas play in the
Yemen International Frontier Resources Delaware basin.
Corp., Calgary, signed a memorandum Production in the Haley area is 85
A group led by Total SA ran success- of understanding to explore 1.9 million MMcfd from 12 wells, Anadarko said.
ful production tests at two wells as part acres in the Central Mackenzie Valley The former Amoco Production Co. dis-
of appraisal and development of the held by the Katlodeeche First Nations covered Haley field in 1983. The dis-
basement reservoir at Kharir field on near Hay River, NWT. covery well, in Loving County north-
East Shabwa Block 10. Upon signing formal agreements, east of Mentone, flowed gas from the
The KHA-403 well, TD 3,383 m, the company would begin geological Pennsylvanian Morrow formation be-
produced more than 6,500 b/d of oil and geophysical exploration on the ac- low 17,000 ft. Anadarko expanded its
and was connected to the field’s main cessible lands in the Deh Cho region position to 110,000 net acres last No-
production facilities. It was drilled to south of the Great Slave Lake. vember when it acquired 35 university
delineate the basement and evaluate International Frontier already holds land tracts totaling 10,000 net acres in
reservoir development in the undrilled interests in more than 1 million acres Loving, Ward, and Winkler counties.
western extension of the structure. in the Mackenzie Valley northwest of Anadarko brought 5 wells on line,
KHA-402, TD 3,441 m, drilled to as- the Katlodeeche lands. operated 6 rigs, and reached TD at 5
sess the potential of eastern Kharir field wells in the fourth quarter.

38 Oil & Gas Journal / Feb. 28, 2005

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DRILLING & PRODUCTION

Demand for land rigs tapped out when it comes to rig avail-
has pushed up utilization ability,” wrote Mason in The Land Rig
and day rates; additional Newsletter, Dec. 30, 2004.
increases should occur in In December, Mason predicted that
2005. Drilling contractors US day rates for the first half of 2005
are adding rigs through might go over $10,000 for an interme-
strategic acquisitions and Drilling diate rig (1,000-1,500 hp); $12-
newbuild programs in or- 12,500 for a 1,500-hp rig; and $16-
der to accommodate rising de-
mand. US land drilling permits in- DRILLING MARKET FOCUS
creased 41% in January 2005 from
a year ago.
Both operators and fleet owners
can profit. Richard J. Mason chal-
lenged readers of The Land Rig Land rigs in demand; fleet
Newsletter (Jan. 28, 2005) to dis-
pute his assertion that operator
profits are highest when day rates
consolidations continue in the Americas
are highest. He points out that rig
counts are generally highest when 16,500 for premium rigs (e.g., 2,000
commodity prices are highest, and that hp or greater, Helmerich & Payne
day rates are not the primary determi- FlexRigs, Rowan-style rigs).
nant of operator profitability. RigData reported that the US land Nina M. Rach
permit count was 1,230 during the Drilling Editor
US rig counts, permits, demand week of Feb. 11, 2005, up 198 permits
US land rig counts have risen steadi- (19%) from the week prior, and up
ly in the last 2 years. The Baker Hughes 181 permits (17%) from the 4-week
rig count was 772 in early February average in February 2004.
2003 and 1,150 the week of Feb. 11,
2005, up from 995 rigs (16% increase) International rig counts
1 year ago. Five states showed double- The Baker Hughes international land
digit gains from February 2004: Texas rig count has increased gently during
(up 72 rigs, to 557); Colorado (up 26 the past 2 years, to
rigs, to 69); Oklahoma (up 15 rigs, to 626 in January
158); California and New Mexico (up 2005 from 568 in T OP 10 US DRILLERS IN 2004, BY FOOTAGE Table 1
10 rigs each). January 2004 and Footage % of Well
drilled total starts
The Land Rig Newsletter reported 521 in January
1,350 rigs drilling in December 2004. 2003. 1 Patterson-UTI Drilling Co. 31,127,644 15.9 3,296
2 Nabors Drilling USA LP 19,801,918 10.1 2,024
The top 100 US drillers drilled a to- In Janujary 3 Helmerich & Payne IDC 9,775,443 5.0 820
tal of 195,368,137 ft in 2004, accord- 2005, this includ- 4 Unit Drilling Co. 9,054,082 4.6 806
5 Grey Wolf Drilling Co. LP 8,688,573 4.4 803
ing to RigData. The top 10 US drillers ed 24 land rigs 6 Caza Drilling Inc. 7,102,783 3.6 835
7 Key Energy Services Inc. 4,625,020 2.4 821
accounted for 51.2% of that total, led operating in Eu- 8 Pioneer Drilling Co. 4,209,682 2.2 402
by Patterson-UTI Drilling Co. (15.9%) rope, 37 in Africa, 9 Capstar Drilling LP 3,667,903 1.9 703
10 Cheyenne Drilling LP 2,212,431 1.1 376
and Nabors Drilling USA LP (10.1%; 109 in Asia Pacific,
Table 1). 210 in the Middle Source: RigData, Feb. 1, 2005

Commenting on fourth-quarter East, and 246 in

2004 results, Gene Isenberg, chairman Latin America.
and CEO of Nabors Industries Inc., said In Africa, land drilling was most ac-
that margins for the US Lower 48 tive in Algeria, with 19 rigs, followed
states’ land drilling group improved by Libya with 9 rigs, and 2 each in
more than expected, “as rig demand Nigeria and Congo.
exceeded the readily available supply.” In Asia Pacific, there were 50 land
Rates for Nabors’ US land rigs increased rigs operating in India, 30 in Indone-
about $500/day vs. the third quarter. sia, eight in Myanmar, and seven in
Nabors has 401 rigs in the US land Australia.
drilling fleet, plus 19 in Alaska. In the Middle East, 34 land rigs were
“There is a burgeoning awareness drilling in Oman, 31 in Iran, 29 in
that the market is not just tight, but Saudi Arabia, 21 each in Syria and

Oil & Gas Journal / Feb. 28, 2005 39

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DRILLING & PRODUCTION

ment manufacturers formed a new
strategic alliance, Source One Drilling
Systems, to provide a single-source al-
ternative for the drilling market.
Houston-based LeTourneau Ellis
Williams Co. (Lewco), a subsidiary of
LeTourneau Inc., held by Rowan Cos.,
supplies mud pumps, drawworks, top
drives, rotary tables, traveling equip-
ment, swivels, and hooks. Houston-
based Cameron, a division of Cooper
Cameron Corp., manufactures pressure
control equipment, BOPs, choke mani-
folds, and valves. Derrick Equipment
Co. produces mud-handling systems.
Tulsa-based Woolslayer Cos. Inc. sup-
plies masts and substructures for land
drilling and offshore derricks. OEM is a
source for AC motors and drives, SCR
drives, drilling instrumentation, auto
Ensign is building ing rigs for its drilling, and drilling cabins, and PC-
10 new ADR- Canadian based control and communications.
1000 coiled tub- drilling fleet Dallas-based Hannon Hydraulics LP
(Fig. 1; photo provides hydraulic cylinder applications
from Ensign such as BOP lifting cylinders, hydraulic
Resource Service
Egypt, 18 in Sudan, and 15 in Pakistan. equipment, four Group). power units, and wireline units.
In Latin America, Mexico led the yard facilities, and
land drilling with 81 rigs, followed by a rig moving fleet Canada
Argentina (73), Venezuela (54), of about 45 trucks and 100 trailers. The Petroleum Services Association
Colombia (14), and Brazil (10). Cloyce A. Talbott, Patterson-UTI's of Canada (PSAC) expects an 8% in-
chief executive officer, said the rigs ac- crease in drilling in 2005 vs. last year’s
Acquisitions, an alliance quired from Key Energy were active in total of 22,696 wells. In the 2005
On Jan. 21, 2005, Calgary’s Ensign the Permian Basin, Rocky Mountain re- Canadian drilling activity forecast is-
Resource Service Group announced it gion, and Four Corners area. Patterson sued Jan. 25, PSAC predicted that
completed the acquisition of Flint UTI's land-based drilling fleet now 24,075 wells would be drilled this
South America Inc.’s Venezuela and stands at 396 rigs. year, with 18,625 in Alberta, 3,950 in
Ecuador operations. This adds 11 Dick Alario, Key Energy Services' Saskatchewan, and 1,300 in British Co-
drilling rigs and 10 workover rigs in chairman and CEO, said "we concluded lumbia. Roger Soucy, PSAC president,
Venezuela and two workover rigs in that the contract drilling segment was said that the record activity level is ex-
Ecuador to Ensign’s South American not an area in which we maintained a pected based on “continued strong
fleet. Ensign had existing operations in competitive advantage." The company commodity prices, an ongoing empha-
Argentina, with 5 drilling rigs and two will focus on its well service business sis on natural gas drilling, and a grow-
workover rigs. in the US and retains 44 rigs in Ar- ing focus on coalbed methane.”
Robert H. Geddes, president of En- gentina and Egypt. It is in the process Canadian land rig counts follow an
sign’s Canadian operations, told OGJ of moving to Houston from Midland. annual pattern of low activity in May-
that 80% of the company’s South Amer- In November 2004, San Antonio- June (about 150 rigs in 2003-04, ac-
ican rigs were under contract during based Pioneer Drilling Co. purchased cording to Baker Hughes) to high ac-
the last year. He expects upward move- Kenmare, N.D.-based Wolverine Drilling tivity in February-March (about 580 in
ment in Argentina, and says they will Inc. for $27.9 million (seven rigs, 500- 2003-04). For the week of Feb. 1,
continue to operate in Venezuela be- 1,000 hp). In early December 2004, Pi- 2005, Baker Hughes counted 585 ro-
cause “where there’s oil, there must be oneer purchased Woodward, Okla.- tary land rigs operating in Canada, up
drilling.” based Allen Drilling Co. for $7.2 mil- from 583 a year earlier.
On Jan. 18, 2005, Patterson-UTI En- lion. Allen Drilling had five mechanical Calgary-based Ensign is building 10
ergy Inc. announced its acquisition of rigs capable of drilling 8,000-11,500 new self-moving, coiled tubing rigs for
the US land drilling assets of Key Ener- ft, in the Texas panhandle, western Ok- their Canadian drilling fleet (Fig. 1).
gy Services Inc. for $62 million. The lahoma, and Kansas. The ADR (automated drill rig)-1000-
company added 25 active and 10 In mid-2004, six US drilling equip- CT is an all hydraulic, DC-driven de-
stacked drilling rigs, related drilling sign. Ensign has 10 existing hydraulic

40 Oil & Gas Journal / Feb. 28, 2005

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rigs in the current fleet of 240 drilling port, Staatsolie drilled 12 exploration The Repsol PSC is for Block 30, cov-
rigs. and appraisal wells and 97 development ering 18,900 sq km, more than 100
Ensign’s Geddes told OGJ that the wells (86 completed, 11 dry) in 2003. km off the coast. The Maersk PSC is for
patented “coil over tubing” design is Seven of the exploration wells were Block 31, covering about 13,800 sq
more efficient because the reel is locat- drilled in the Calcutta field in the Sara- km, 30 km from the coast, in water
ed above the table. The pipe is only macca area onshore, and five in the 20-50 m deep. A 2D seismic survey off
bent twice, instead of six times, result- Tambaredjo West area. In 2004, Staat- Suriname, using the Polar Venturer ship,
ing in less pipe fatigue. The new rigs solie planned to drill 115 production began in October 2004.
can drill with 27⁄8-in. as well as larger wells and additional exploration wells
31⁄2-in. coiled tubing or jointed drill including appraisal wells at Calcutta Guyana drilling
pipe. and delineation drilling (step-outs) ON Energy Inc., a Guyanese sub-
Geddes said Ensign’s strength is in along the western boundary of the sidiary of CGX Energy Inc. (84.6%,
designing and running its own prod- Tambaredjo oil field. The company was formed in 2003), will drill five land
ucts, watching over engineering, pro- also evaluating slant-hole and horizon- exploration wells in the 800,000 acre
curement, and construction. The com- tal drilling. Berbice Block, onshore and near shore
pany uses 10-15 different subcontrac- In 2002, Staatsolie drilled 78 devel- Guyana, at an estimated cost of $2 mil-
tors in Canada and China in rig con- opment wells (73 completed) of the 81 lion each, including infrastructure de-
struction. planned. In 2001, Staatsolie drilled 44 velopment. In August 2004, Kerry Sully,
development wells (39 completed) and president of CGX and chairman of ON
Suriname drilling Koch Exploration Canada Ltd. drilled Energy, said the prospects are on trend
In its 5-year plan, announced Oct. seven wells in the Wayombo block with and have “strong analogies” with
25, 2004, the managing director of (four with shows) between July and Suriname’s Tambaredjo and Calcutta
Staatsolie October. Koch fields, 200 km to the east, but later
Maatschappij had signed a geochemical assays showed the oil to
Suriname NV 20-year PSC be lighter.
(Staatsolie), Dr. in March Drilling was supposed to have begun
S.E. Jharap, 2000 for in late 2004, but the drilling rig is de-
said the state 140,000 layed in Trinidad until late February to
oil company acres, focused early March 2005. In a drilling update
would drill on heavy oil, released by CGX on Jan. 10, ON Ener-
100 onshore but released gy’s president, Warren G. Workman,
exploration the concession said there was a “lack of qualified
wells for an es- in 2003. Koch equipment in the region.” CGX told
timated cost of Petroleum OGJ in February that the wells will all
$18 million. Group Inc. is be drilled by the same rig and are ex-
The drilling an affiliate of pected to take about 2 weeks each.
would attempt Suriname’s Staatsolie lost Rig V and its swamp drilling privately held
to establish a equipment in a fire after a blowout on Aug. 30, 2004 (Fig. Koch Indus- Venezuela, Colombia
minimum of 2; photo from Staatsolie). tries Inc. Some scheduled drilling is on hold
100 million Staatsolie in Venezuela. State oil company
bbl proven oil reserves in Saramacca. lost its swamp drilling machine (Rig V) Petróleos de Venezuela SA asked Har-
Kailash Bisessar of Staatsolie told and other related equipment in a fire vest Vinccler CA (HVCA), the Venezue-
OGJ that the company uses two rigs for on Aug. 30, 2004 (Fig. 2). The rig was lan operating company for Houston’s
development drilling; one a company- being used for exploratory drilling Harvest Natural Resources Inc., to re-
owned Failing 2500, and the other north of the Tambaredjo field and duce production in the South Monagas
leased from a contractor. In 2004, caught fire following a natural gas unit in eastern Venezuela’s Delta
Staatsolie drilled 99 development wells blowout. Amacuro state (OGJ Online, Jan. 19,
in the Tambaredjo field using these rigs. Suriname’s offshore comprises about 2005). HVCA had two rigs under con-
The Tambaredjo field wells were all 170,000 sq km, which the country tract that were drilling in the Uracoa
drilled vertically and the average depth seeks to exploit with foreign partners. field in 2004, and had expected to use
is about 1,400 ft, Bisessar said. In the 2003-04 international bidding them to drill seven additional wells in
Exploration and appraisal drilling in round, 13 blocks were offered. Accord- 2005.
the marshy coastal area is accomplished ing to press releases in 2004, Staatsolie PDVSA is also delaying the 14-well
using a rig on a swamp carrier. In signed 30-year production sharing development program planned by
2004, Staatsolie drilled 4 wells in a pi- agreements with Spain’s Repsol-YPF ConocoPhillips’ unit Conoco Venezuela
lot project in the Calcutta field using a (April) and Denmark’s Maersk Oil, part CA and partners in the Corocoro oil
swamp rig. of the A.P. Moller-Maersk Group (No- field, Gulf of Paria West, after finding
According to the 2003 annual re- vember). that the revised business plan is $200

Oil & Gas Journal / Feb. 28, 2005 41

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million less than originally planned. In

mid-January, Rafael Ramírez, who
serves as Venezuela’s energy minister
This introduction to and president of PDVSA, said Venezuela
reservoir engineering will wants to renegotiate contracts with
help readers understand overseas firms for projects such as
Corocoro, contending that the terms
how to perform reservoir are unfavorable for Venezuela, according
simulations including to Business News Americas.
showing them how to In Colombia, Occidental de Colom-
bia plans 40 new development wells at
process data for input and Caño Limón, the country’s second-
how to evaluate studies largest oil field, on the northern edge
of the Llanos Basin. Occidental has
conducted by colleagues. budgeted $30 million for the wells and
Author Mike Carlson shows 3D seismic survey under the amended
how to link geology and 2004-07 work program, announced
Jan. 17, 2005.
simulation input—the most
critical aspect of successful reservoir simulation. The Farther south
Reuters reported on Jan. 21, 2005,
book also covers techniques that are unique to reservoir that Petroecuador was seeking bids
simulation, such as pseudo relative permeability. from 18 prequalified companies to
provide an estimated $397 million in
Contents: • Introduction • Mathematical Considerations well services to raise crude oil output
• Geology, Petrophysics and Layering • Multi-disciplinary Integration in four Amazon jungle fields:
and Geostatistics • Production Performance Analysis • Reservoir Fluid Shushufindi, Lago Agrio, Culebra-Yule-
PVT: Data Screening • Capillary Pressure and Relative Permeability: bra, and Auca. The projected work in-
cludes drilling new wells, recondition-
Data Screening • Pseudo Relative Permeability and Upscaling
ing existing wells, acquiring and inter-
• Initialization • Objectives, Critical Issues and Study Integration preting seismic data, among other ac-
• Basic Data Set Building, Computer Prowess, Numerical Controls tivities. Bids are due Mar. 25, 2005.
and Run Data • History Matching • Predictions • Report Preparation, The 18 companies include: Brazil’s
Danger Zones and Assessing Simulation Results • Hydraulically Petrobras, Chile’s Sipetrol, Ecuador’s
Fractured Wells and Horizontal Wells • Compositional Modeling, Gas Tecpecuador, Argentina’s CGC, Europe’s
Teikoku Oil, China’s Chanquing Petro-
Condensate and Volatile Oil Reservoirs • Advanced Processes leum, Tecpetrol-Tecpecuador consor-
• Fractured Reservoirs • Thermal Models • Problem Sets tium, China’s Sinopec Internacional,
Ecuador’s Dygoil, Ecuador’s Schlum-
Key Features & Benefits: berger Surenco, Urazul, Colombia’s
• An easy to understand treatment on reservoir simulations SPLA consortium, Sweden’s Skanska,
• Teaches the critical link between geology and simulation input Colombia’s Hocol, Nuevo Cerro
• Shows how to evaluate studies conducted by colleagues Dragón-Ecuapet consortium, Amazonic
Sustainable, Cayman Internacional of
Includes problem sets along with critical the US, and Ecuador’s Pluspetrol.
On Jan. 30, 2005, Chile’s national
issues and study integration oil company, Empresa Nacional de
Petróleo (ENAP), called for bids to
3 Easy Ways to Order:
drill and provide services for a $10
1.Tel: 800.752.9764 or +1.918.831.9421
million well in the Lago Mercedes area,
2. Fax: 1.877.218.1348
Tierra del Fuego province. Bids will be
3. Online: www.pennwellbooks.com Key Code OGJAD
due Mar. 15-16, 2005, according to
Business News Americas. ✦
ISBN: 0-87814-803-5 / 8-1/2 x 11 Hardcover / Approx. 516 pages / 2003
Price: $109.00 US – Order today!

42 Oil & Gas Journal / Feb. 28, 2005

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DRILLING & PRODUCTION

3D seismic data predict Al-Khafji reservoir attributes

Kalyan Chakraborty horizon helped define a prospective re- utes and thereby opened up an addi-
Kuwait Gulf Oil Co.
Ahmadi, Kuwait gional Wara lithozone between Wara tional exploration area for reserves ad-
and Mauddud formations. The litho- ditions and also for drillable explorato-
Ahmed Mostafa zone predominantly consists of shales, ry or development locations.
Kuwait Foreign Petroleum siltstones, and sandstones with minor
Exploration Co. calcareous sediments. 3D seismic
Safat, Kuwait Production The study inferred a definite rela- The industry has proved that 3D
tionship between porosity and seismic seismic surveys are powerful tools for
A recent study using data from the attributes. Porosity estimation using imaging subsurface geology. By reduc-
Al-Khafji oil field, in the Arabian Gulf seismic attributes at all seismic loca- ing the dry-hole risk and providing
off Kuwait, shows how seismic attrib- tions provided good confidence and better well placement to obtain greater
ute data can predict reservoir proper- the confidence improved at well loca- flow rates and improved drainage, these
ties, such as porosity, and its lateral tions, thus describing reservoir proper- surveys provide high cost-benefit ra-
variations and extensions if the attrib- ties between and away from wells. tios, improved reserves estimate, and
utes are calibrated accurately with the Porosity maps derived from well-cal- shorter appraisal and project develop-
respective petrophysical data. ibrated seismic amplitudes and com- ment times.
The study explored reservoir quality puted sand volume maps also predicted The surveys play a significant role in
and its spatial distribution and exam- possible geological environments under field development and production
ined the stratigraphic trapping mecha- which the sand bodies were deposited, strategies and help rejuvenate oil fields
nism with 3D seismic imaging. The Al- particularly in the eastern part of the with declining production profiles.
Khafji field had available 350 sq km of main Al-Khafji field. Integration of well data (more
3D seismic and data from 62 wells. In the eastern part of the area, the specifically, porosity, permeability, water
In the study, the geological marker interpretation found a good confidence saturation, facies, etc.), production da-
was flattened along a calibrated time level for the associated porosity attrib- ta, seismic data, core data, and other
supporting conceptual ideas will always
add value to a prospect, field, or basin.
A L-KHAFJI OIL FIELD Fig. 1
Mathematically integrating all these
data is not easy because of scale differ-
Mina Abd Allah
ences and different acquisition sources.
Any model generated with the available
Dorra data can always contain uncertainty.
Ras al Qulayah Geoscientists often create several
A r a b i a n G u l f possible geologic scenarios for their
prospect. These scenarios involve look-
Haut
ing past the most likely model, deter-
Mina Suud
mining a different “what-if” scenario,
and then capturing the differences
10 m

Study area mathematically or statistically. After this

K U W A I T process, models can simulate the sce-
narios and determine the possible
I RAN
I RAQ range of hydrocarbons contained in a
Area
Ras al Khafji
Al-Khafji shown prospect.
The creation of a series of equally
SAUDI U AE probable reservoir models, each con-
OM AN
SAUDI ARABIA ARABIA taining known and speculated informa-
Ras al Mishab I ndi an tion with their inherent uncertainties,
Ocean
YEM AN
is beneficial for understanding reser-
voirs. For a reservoir engineer, accurate

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determination of
spatial porosity
G ENERALIZED STRATIGRAPHY Fig. 2

Age Stage Group Formation Lithology Reservoirs Thickness, Depth, Remarks

distribution is a ft ft
key to understand- Sandstone
Kuwait Shaly sand
ing and predicting Neogene Ghar 1,500
Limy sand
Unconformity
500

petroleum reser- Paleocene-

Dammam Dolomite
sh, ls 700 750
voir performance. Cretaceous Eocene

Hasa
Rus Anhy, Dol. 300 1,250
The characteri- Dolomite 1,650
Rudhuma 2,000
zation of the Unconformity
3,250
porosity distribu-
Aptian Albian-Cenomanian-Turonian Maestrichtian
Santonian-

Aruma
Tayarat
tion uses diverse
Upper

Dolomite
1,000
information. Bahra Limestone 400
4,400

For example, Gudair Limestone 200

well information Mishrif
Unconformity Gray shale
Middle Cretaceous

Eroded 5,000
provides good ver- Rumaila sh Shale 500
Rumaila Rumaila ls
tical resolution but Limestone "U" limestone
Brown shale
Ahmadi sh Shale 100
Wasia

poor horizontal Ahmadi

Ahmadi ls Limestone "A" limestone 300
resolution because Wara Shale, ss Wara sand 150
of large distances Mauddud Limestone "B" limestone 350
Sandstone Upper Bergan 150
between wells. On Burgan
Safaniya
400
5,600
1st Bahrain sand
Intermediate
the other hand, Kafji Sandstone 800 2nd Bahrain sand
Thamama
Cretaceous

Unconformity5,700
Berrasian-

seismic reflection Shuaiba Limestone 200

Early

Zubair sand Zubair sand Sandstone

Shale
5,900
data provide hori- Zubair
Argil ls Limestone
1,200
6,900
Argillaceous
limestone

zontal resolution Hout

Hith
Limestone,
Ratawi limestone 2,000
shale
Dogger Malm

Anhy, ls 8,840
Jurassic

but has lower ver- Gotnia 1,350

Salt, Anhy, ls
Marl
10,200
tical resolution. Najma
Sargelu
Limestone
Ls, Marl, Sh
2,000
In the study, Drhuma (Alan)
Marrat (Mus)
Dol., Anhy, Sh Hydro-
12,100 carbon
Ls, Marl, Sh
seismic attributes
computed from
the 3D seismic da-
ta set proved useful in relating different ter-well porosity from surface seismic Prediction of reservoir qualities and
reservoir characteristics interpreted reflection data. spatial distribution are typical problems
from well data. These attributes input The accompanying box provides for planning exploration and develop-
into models provided a description of some references that present details on ment wells in the Al-Khafji area.
the porosity distribution for Al-Khafji various aspects of this analysis. The present study includes unique
oil field. input data and requirements, and each
The 3D seismic data were an asset in Problem definition target area required its own unique
the study area for improving dense Stratigraphic trapping mechanisms workflow to solve the problem. The au-
subsurface sampling of acoustic proper- play a critical role for entrapping hy- thors took advantage of integrating
ties, which in turn can improve calibra- drocarbons in the Lower-Middle Creta- both high-resolution dense 3D seismic
tion of well reservoir porosity for the ceous reservoirs in the Al-Khafji area. and the fairly dense well data of the Al-
entire seismic coverage. The acquired 3D seismic over the area Khafji prospect.
aimed to delineate the stratigraphic and The methodology employed in the
Literature review possible strati-structural traps and their study involves finding a correlation
Relating seismic attributes to petro- associated reservoir setting. through cross plots between well-de-
physical properties provides a way for The assessment of a reservoir’s hy- rived gross/average porosity and seis-
spatial porosity distribution. An analyst drocarbon potential requires the pre- mic attributes. The work established a
can develop these porosity-seismic data diction of the porosity. As previously calibration function from the correlated
relationships from theoretical and ex- stated, it is difficult to solely predict lat- data and then further used it in a guid-
perimental sand and sand-clay models. eral variations of porosity from sparse ed mapping technique to derive spatial
Traditionally, the work has involved downhole measurements. The integra- porosity distribution of the Wara for-
velocity-porosity relationships estimat- tion of 3D seismic with petrophysical mation over the entire seismic grid.
ed from regression methods that fit lin- data can improve the description of Fig. 1 shows the study area.
ear trends for certain intervals. More re- both lateral and vertical variations of
cently, the industry has used statistical porosity because the seismic has dense Al-Khafji geology
techniques to obtain better results in common depth-point (CDP) or com- Al-Fares investigated the tectonics
relating porosity to seismic reflection mon midpoint (CMP) coverage. and stratigraphy of the Arabian Gulf
attributes, particularly in describing in- basin and its relation to Arabian and

44 Oil & Gas Journal / Feb. 28, 2005

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DRILLING & PRODUCTION

structural style that had a direct bearing
W ARA FORMATION PRODUCTION Fig. 3
on hydrocarbon system in the Kuwait
Gulf basin between the Burgan arch in
30 Cumulative production the west and Khafji-Nowruz arch in the
million bbl of water
million bbl of oil

Oil east. But regional geological cross-sec-

Production,

bcf of gas

20 tions and seismic depth maps suggest

structure dominance by regional gentle
10
Gas dip in the northeasterly direction.
Water The north-northeast trending Khafji-
0
1980 1985 1990 1995 2000 2005 Nowruz arch, in the extreme east of
the Kuwait Gulf, is a significant off-
million bbl of water/year

Yearly production shore structural feature. This structure

million bbl of oil/year

4
plunges gently to the north-northeast
bcf of gas/year
Production,

3
Oil and is asymmetric with a steeper west-
2 ern flank; and, in common with the
1 Gas Burgan arch, the upper part of the mid-
Water dle Cretaceous sequence appears to be
0 truncating below the base of upper
1980 1985 1990 1995 2000 2005
Cretaceous unconformity over the
Cumulative oil production by well
structure. Many prolific hydrocarbon-
7 KA-1
6 KA-2 producing wells in the Arabian Gulf are
KA-3
Production,
million bbl

5 KA-4 from the Cretaceous sequence.

KA-5
4 KA-6 Al-Fares explored the stratigraphic
3 and facies framework of the entire Cre-
2
1
taceous sequence and its lower, middle,
0 and upper Cretaceous facies distribu-
1980 1985 1990 1995 2000 2005 tion in the Arabian Gulf.
Stratigraphically, the Wara formation
occurs in the Middle Cretaceous se-
quence, which is also widely distrib-
uted in the Arabian Gulf. It is con-
3D SEISMIC LAYOUT Fig. 4
formably overlain by the Ahmadi and
48° 44 E 48° 48 E 48° 52 E 48° 56 E 49° 00 E 49° 04 E 49° 08 E underlain by the Mauddud formations.
The lithology is mainly composed of
199 5
204 5

0
20945

16050
21 95

5
21 45
22 5

15 00
shale, sandstone, and calcareous sedi-
22945
23 95

15 50
23 45
24 5

14 00
249 5
25495

14 50
25 45

ments.
26 5
26945

13 00
27 5
27945

13 50
28 95
28 45

12 00
29 95
29 5

12 50
Fig. 2 shows a generalized stratigra-
304 5
30945

11 00
199
31 95
31 45

11 50
32 5
32945

11 00
33 95

7K
33 45

phy of the Al-Khafji field, in which the

34 95

10 0
34 45
35

95 0
356945

haf
3 95

90 0
36 45
37 5

85 0
5
379 5

Wara formation shows alteration of

38495

ji 3

80 0
38 45
39 95

N 75 0
39 45
40 5

70 0
40945
41 5

65 0
shales, siltstones, and sandstones with
41945
42 95
42 5

60 0
434 5
43945

55 0
44 95
44 45

50 0
45 5

some calcareous material in the upper

45945

45 0
46 95
46 45

40 0
47 95
47

35 0
30 0
0
16050
25 0
20 0
and lower portions of stratigraphic col-
15 00 15 0
15 50
14 00
14 50
10
502
3
umn. The gross formation thickness
13 00
varies from 150 to 205 ft.
199

13 50
20495
20 45
21 95

12 00
5
21 45

5
22

12 50
22945
23 95

11 00
Fig. 3 shows the production status of
23 45
24 5

11 50
5
249
25495

11 00
25 45
26 95
26 45

10 50
5
27 5

key wells producing from the Wara for-

27945

9 0
28 5

90 0
28945
29 95

85 0
29 5
30495
30 45

80 0
mation of the main Al-Khafji oil field.
31 95
31 45

75 0
32 5
32945

70 0
33 95
33 45

65 0
34 5
349 5

60 0
Burgan sandstones of the Wasia group
35495
35645

55 0
3 95
36 45

50 0
37 5
37945

45 0
38 95

0 8,000
38 45

appear to dominate the reservoir facies.

39 5

40 0
399 5
40495

35 0
40 45
41 5

30 0 Meters
41945
42 5

25 0
42945

The upper part of the Wasia forma-

43 5
43945

20 0
44 95
44 45

15 0
45
45945

10 0
46 95
46 45

52
tion contains thick shales. Another sand
47 95

3
47

280,000 290,000 300,000 310,000 320,000

unit, the Wara of the Wasia group lies
between the Ahmadi and Mauddud for-
mations. The Wara sandstone contains
the hydrocarbon reservoir and is the
African plate tectonics.1 He demonstrat- logical arguments and use of available subject of the study on determining the
ed the evolution of the petroleum sys- exploration data. spatial distribution of porosity by
tems in the Arabian Gulf with his geo- His study observed no significant combing 3D seismic attributes with

46 Oil & Gas Journal / Feb. 28, 2005

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WARA-MAUDDUD ZONE Table 1

Net- Sand Shale Net
gross Gross volume volume Net reservoir
thickness Gross porosity, Net fraction, fraction, shale porosity,
Top, Bottom, ratio, thickness, TVD thickness TVD TVD thickness, TVD
Borehole MD ft MD ft TVD TVD, m cu m/cu m TVD ft cu m/cu m cu m/cu m TVD ft cu m/cu m

KA-1 4,667 4,836.0 0.2189350 168.974 0.0332203 36.9944 0.2189350 0.781065 131.980 0.0868216
KA-2 4,562 4,734.0 0.1642940 144.203 0.0519568 23.6918 0.1642940 0.835706 120.512 0.1715310
KA-3 4,399 4,564.0 0.2121310 164.949 0.0520189 34.9908 0.2121310 0.787869 129.958 0.1129570
KA-4 4,521 4,686.0 0.1363640 164.980 0.0549179 22.4973 0.1363640 0.863636 142.483 0.0604413
KA-5 4,324 4,496.0 0.0363370 171.973 0.0660876 6.24899 0.0363370 0.963663 165.724 0.0847064
KA-6 4,609 4,791.5 0.5154270 167.967 0.0668581 86.5749 0.5154270 0.484573 81.3924 0.1137670
KA-7 4,491 4,666.0 0.2452950 170.140 0.0691848 41.7345 0.2452950 0.754705 128.406 0.1741160
KA-8 4,672 4,867.0 0.1601480 162.604 0.0701013 26.0407 0.1601480 0.839852 136.564 0.1756940
KA-9 4,558 4,708.0 0.2783960 144.852 0.0709882 40.3263 0.2783960 0.721604 104.526 0.1330590
KA-10 4,571 4,689.0 0.3181100 116.421 0.0718176 37.0348 0.3181100 0.681890 79.3867 0.1417720
KA-11 4,513 4,688.0 0.0871397 174.895 0.0763440 15.2403 0.0871397 0.912860 159.655 0.1529950
KA-12 4,584 4,754.0 0.3441180 169.909 0.0822442 58.4686 0.3441180 0.655882 111.440 0.1915770
KA-13 4,573 4,748.0 0.2328240 168.084 0.0835946 39.1340 0.2328240 0.767176 128.950 0.1968650
KA-14 4,427 4,606.0 0.3086580 178.988 0.0849236 55.2461 0.3086580 0.691342 123.742 0.1728760
KA-15 4,660 4,827.0 0.2979150 158.094 0.0880487 47.0987 0.2979150 0.702085 110.996 0.1983900
KA-16 4,467 4,628.0 0.2996900 160.997 0.0907700 48.2493 0.2996900 0.700310 112.748 0.1875450
KA-17 4,937 5,147.5 0.3254070 190.695 0.0940818 62.0534 0.3254070 0.674593 128.642 0.1909070
KA-18 4,337 4,507.0 0.2455870 169.985 0.0943303 41.7462 0.2455870 0.754413 128.239 0.2002650
KA-19 4,306 4,471.0 0.3121160 164.919 0.0952670 51.4737 0.3121160 0.687885 113.445 0.1741080
KA-20 4,360 4,536.0 0.3139220 175.997 0.0995285 55.2493 0.3139220 0.686078 120.748 0.1899260
KA-21 4,404 4,569.0 0.1893980 164.942 0.0996109 31.2398 0.1893980 0.810602 133.702 0.1982510

well data.
Underlying the L ITHOZONE CORRELATIONS Fig. 5

Wasia formation is Well A Well B Well C Well D Well E Well F

the Thamama that
4,480
contains shales and 4,448

possible fossil fa- 4,440

4,440 Top Wara
cies. 4,320

4,520
4,440

The area has 4,480

limited gravity and 4,360

4,480
4,480
4,480

magnetic surveys 4,560

4,520

and sparse well da- 4,400

4,520
4,520
4,520
ta describing both 4,600

the vertical and 4,560

4,560 4,560
lateral variations of 4,440
4,640
the Wara unit Top Mauddud
4,600
within the 350 sq 4,480
4,600 4,600
4,680
km coverage of the
3D seismic data. 4,520
4,640
4,640 4,640

This area con- 4,720

4,680

tains 62 wells. The 4,680

4,560 4,680
wells have core 4,760
4,680

4,720
samples, porosity
measurements,
and wireline logs
and all were in-
cluded in a petrophysical analysis. (RESUM) for calculating interval prop- tween seismic attributes and porosity.
Fig. 4 shows the layout of the 3D erties such as gross porosity and sand The purpose of significance estimation
seismic layout. fraction volume (Table 1). This analysis was to quantify which attributes affect
generated 25 different attribute maps porosity measurements. The algorithm,
Reservoir mapping from the interpreted 3D seismic data based on the Kendall-Tau indicator, de-
In the study, a regional geological volume between the top of Wara and termines for each attribute-porosity
marker, well data, and an interpreted Mauddud formations (Figs. 6a and 6b). pair a probability value for the meas-
time horizon identified a prospective Fig. 7 shows cross plots of the attrib- ured random relationship.
lithozone (Fig. 5) between the top of ute values at the wells vs. porosity. A The study selected eight attributes
the Wara and Mauddud formations. “significance estimation” method de- based on the significance value and the
The analysis included the use of a termined the degree of correlation be- calibration function estimated at each
reservoir-property summation module intersection. A guided mapping tech-

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DRILLING & PRODUCTION

A TTRIBUTE AND POROSITY MAPS Fig. 6
Average seismic magnitude Fig. 6a Average seismic peak amplitude Fig. 6b

19945
0 0

20 95
0

20 5

19945
16050

21495

20 5
5
0

21 45

20945
16050

22 95
15 00

21 95

5
22 45

21 45
23 95

22 95
15 50 15 00

23 45

22 45
24 95

23 95
14 00
1,000 15 50
1,000

24 5

23 45
25495

24 5
14 50 14 00

25 45

24945
26 95

25 95
14 50

26 45
13 00

25 45
27 95

26 95
27 45
13 50

26 45
13 00
N

27 95
28 95
28 5

27 45
12 00 13 50
2,000 2,000
29495

28 5
29 45

28945
30 95 12 50 12 00

29 95
30 45

29 45
11 00 12 50
31 95

30 95
31 45

30 45
11 50 11 00
32 95

31 95
32

31 45
11 00 11 50
33495

32
33 45

3,000 3,000

32945
34 95

10 0 11 00

33 95
34 45

33 45
5
35 95

34 95
95 0 10 0

5
35645

34 45
35 95
3 95

90 0 95 0

35645
36
37495

3
85 0 90 0
37 45

36945
38 95

37 95
80 0
4,000 85 0
4,000
38 45

37 45
5
39 95

38 95
75 0 80 0
39 45

5
38 45
40 5

39 95
70 0 75 0
40945

39 5
41 95

40495
65 0 70 0
41 45

40 45
42 95

41 95
65 0
42 45

41 45
60 0

Average magnitude

Average magnitude
5,000 5,000
43 95

42 95
43 45

42 45
55 0 60 0
44 5

43 95
44945

43 5
50 0 55 0
45 95

44495
45 45

44 45
45 0 50 0
46 95

45 95
46 45

45 45
40 0 45 0
47 95

46 95
6,000 6,000
47

46 45
35 0 40 0

47 95
47
30 0 35 0
0 25 0 30 0
16050 20 0 0 25 0
16050
15 00
15 50
14 00
15 0
10
502
7,000 15 00
15 50
20 0
15 0
10
7,000
14 50 3 14 00 502
13 00 14 50 3
8,000 8,000

19945
13 50 13 00

20 95
20 5

19945
13 50

21495
12 00

20 5
5
21 45

20945
22 95
12 50

21 95
12 00

5
22 45

21 45
23 95

22 95
11 00 23 45 12 50

22 45
9,000 9,000
24 95

23 95
11 50 11 00
24 5

23 45
25495

24 5
11 00 11 50
25 45

24945
26 95

25 95
26 45

10 50 11 00

25 45
27 95

26 95
27 45

26 45
9 0 10 50

27 95
28 95

90 0
10,000 10,000
28 5

27 45
9 0
29495

28 5
85 0 90 0
29 45

28945
30 95

29 95
30 45

80 0 85 0

29 45
31 95

30 95
75 0
31 45

30 45
80 0
32 95

31 95
32 5

75 0

31 45
70 0
0 200
33495

11,000

32 5
0 200 11,000
33 45

32945
65 0 70 0
34 95

33 95
34 45

33 45
60 0 65 0
35 95

34 95
35645

34 45
55 0 60 0

35 95
3 95

35645
36 5

50 0 55 0
37495

3 5
37 45

Meters

36945
45 0
12,000 50 0
12,000
38 95

37 95
Meters
38 45

37 45
39 95

40 0 45 0

38 95
39 45

38 45
40 95

39 95
35 0 40 0
40 5

39 45
41495

40 5
30 0 35 0
41 45

40945
42 95

41 95
30 0
25 0
13,000 13,000
42 45

41 45
43 95

42 95
25 0
43 45

20 0

42 45
44 95

43 95
44

43 45
15 0 20 0
45495

44
45 45

44945
10 0 15 0
46 95

45 95
46 45

45 45
52 10 0
5
47 95

46 95
3

5
47

46 45
52

47 95
3

47
Fig. 6c Fig. 6d
Porosity with only well data Porosity with both well and seismic data
48° 54 48° 56 48° 58 49° 00 48° 48 48° 50 48° 52 48° 54 48° 56 48° 58 49° 00 49° 02 49° 04 49° 06 49° 08

Original property data

Original property data 0.05
Frequency, n

N Frequency, n

0.10

cu m/cu m
Gross porosity
Gross porosity 0.45

0 4,000
0 8,000 0.20
Meters
Meters

3000,000 250,000 3000,000 310,000

nique, consisting of the following There is a high degree of confidence 9c), when superimposed on the final
steps, obtained the final porosity map (Figs. 8a and 8b) between well and porosity map, shows more thickness in
on the entire seismic grid: seismic derived porosity at well loca- a better porosity development area. This
1. Apply calibration function by tions. The confidence map (9a) shows a possibly indicates the existence of a
converting the seismic attribute grid to possible error range in porosity values sand body.
porosity grid using estimated calibra- that is almost negligible. This implies A sand fraction volume map (Fig.
tion function. that the seismic derived porosity map 9d) confirms the presence of sand
2. Calculate a residual scatter by depicts exactly the actual porosity of prone areas (50-60%) similar to favor-
computing residual values at well loca- the Wara formation throughout the able porosity development zones.
tions. mapped area.
3. Compute residual grid by gener- The central part of Al-Khafji field Oil play analysis
ating a residual grid based on the resid- shows a relative high-porosity trend The Burgan sandstones of the Wasia
ual scatter set. that several wells have established. This group appear to dominate reservoirs in
4. Apply the residual grid by cor- trend correlates with a channel system this basin. Burgan sandstones consist of
recting the porosity grid to the residual deduced from well data. Safania and Al-Khafji sand units with
grid and ensuring a match between the The interpretation shows a sudden minor shale intercalations. The interpre-
well data and the final porosity grid. 5% porosity decrease in the eastern tation is that the Safania sand unit is
5. Estimate confidence by determin- part of main Khaji field and an increase thicker than the Al-Khafji sand unit. All
ing the estimated error between the to 22% porosity further to the east. A these sandstones are potential reser-
well data and final porosity grid. fault zone cutting the structure high voirs.
may have caused this change. The upper part of the Wasia forma-
Porosity maps interpretation As shown in 9b, the study interpret- tion consists of shale and limestones
Figs. 6c and 6d are porosity maps ed a channel feature extending toward that appear to be acting as seals for
computed respectively from well data the east of Al-Khafji field. The localized Wara reservoirs, while the source rock
and combined seismic and well data. high-porosity anomaly in the eastern may be the Thamama group underlying
The porosity values range between 3 part of Al-Khafji field may be a local- the upper Wasia formation. The Thama-
and 22% with mean values between 10 ized geological feature. ma consists of shales and calcareous
and 12%. The vertical time-thickness map (Fig.

48 Oil & Gas Journal / Feb. 28, 2005

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tude at the top of

S EISMIC ATTRIBUTES Fig. 7
Wara formation
Top Wara significance: 83.1 Top Wara significance: 85.2 and the average
0.2 0.2 log-derived poros-
ity in the reservoir,
Gross porosity

Gross porosity
using data from
0.15 0.15
nearby exploration
or development
0.1 0.1 wells.
The porosity-
0.05 0.05 amplitude cross
plot uses the
2,000 4,000 6,000 8,000 0 2,000 4,000 8,000 phase-corrected
Average magnitude Average peak amplitude seismic data. The
statistics from the
Top Wara significance: 82.8 Top Wara significance: 89.0 porosity-amplitude
0.2 0.2
trend provide an
insight into how
best to use the in-
Gross porosity

Gross porosity

0.15 0.15
formation. Predic-
tions of absolute
0.1 0.1 porosities on a
larger scale could
0.05 0.05
be difficult be-
cause of errors as-
80 100 140 180 20 60 200 220 sociated with ab-
solute predictions.
Bandwidth rating bias Bandwidth rating debias
But the slope of
the cross plot is
well defined, so
material with possible fossil facies. The appropriate approach depends on that the relationship is useful for deter-
The interpretation of the study area the nature of relationship between vari- mining the best porosity in a local area.
is that both stratigraphic and a combi- ous reservoir parameters that affect the It is useful to know the slope, not just
nation of trapping mechanisms (strati- seismic data. that there is some trend, because it pro-
structural) control the hydrocarbon dis- For a thin reservoir, such as in Al- vides an indication of the trade off be-
tribution; in other words, both struc- Khafji field, the study used an approach tween location, from a reservoir-
ture as well as on lapping or wedging that searched by a simple direct rela- drainage standpoint, and porosity. The
out of the Wara sand facies in the up- tionship between reflection amplitude slope also can indicate how much
dip-direction and shaling-out within and porosity attributes. porosity can be gained by moving a
basin affect the distribution. The analysis had to correct the phase certain distance from the best drainage
Seismic anomalous features suggest of the seismic data to find a linear rela- location.
the presence of scalable facies changes tionship between the reflection ampli- The porosity-amplitude trend when
and at places lens-
type deposits that
also indicate strati- W ELL AND SEISMIC POROSITIES Fig. 8

graphic control. Three wells Fig. 8a Eight wells Fig. 8b

1
Porosity– 2
amplitude 2&3

1
3
4
relationship 2
5 6/7

8
Literature dis-
cusses a variety of
techniques for re- 3
1 1 3
4
5
2 6/7
lating reservoir 8
porosity or the
product of porosi-
ty and thickness to
seismic attributes.

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DRILLING & PRODUCTION

Principal references attribute Seismic Analysis,” The Leading
Edge, 16, 1997, pp. 1439-43.
Leading Edge, Vol. 23, No. 5, 2004, pp.
432-42.
Many references discuss various
aspects of using statistical techniques 3. Empirical relationships be- 5. Geostatistical techniques to
for relating porosity to seismic reflec- tween porosity and seismic attrib- relate transit times from surface
tion attributes. The following lists 13 utes. seismic reflection data to porosi-
aspects of the analysis with the perti- • Bloch, S., “Empirical prediction of ty measurements from wells and
nent references. porosity and permeability in sand- compare the results to those de-
stones,” AAPG Bulletin, Vol. 75, 1991, rived from linear regressions.
1. Theoretical aspects of 2D pp. 1145-60. • Doyen, P.M., “Porosity from seis-
seismic complex trace analysis • Bloch, S. and Helmold, K.P., “Ap- mic data: A geostatistical approach,”
methods. proaches to predicting reservoir quality Geophysics, Vol. 53, 1988, pp. 1263-
• Barnes, A.E., “Theory of 2D com- in sandstones,” AAPG Bulletin, Vol. 79, 75.
plex seismic trace analysis,” Geo- 1995, pp. 97-115. • Gorell, S.B., “Using geostatistics
physics, Vol. 61, 1996, pp. 264-72. • Chen, Q., and Sidney, S., “Seismic to aid in reservoir characterization,”
• Taner, M.T., Koehler, F., and Sher- attribute technology for reservoir fore- The Leading Edge, Vol. 14, September
iff, R.E., “Complex seismic trace casting and monitoring,” The Leading 1997, pp. 967-74.
analysis,” Geophysics, Vol. 44, 1979, Edge, 16, 1997, pp. 445-52. • Hart, B.S., “Validating seismic at-
pp. 1041-63. • Dvorkon, J., and Alkhater, S., “Pore tribute studies: Beyond statistics,” The
fluid and porosity from seismic,” First Leading Edge, Vol. 21, 2002, pp. 1016-
2. Aspects of 3D seismic data Break, Vol. 22, 2004, pp. 53-57. 21.
acquisition, interpretation and • Gluyas, J., and Cade, A.C., “Predic- • Love, K.M., Strohmenger, C.,
multi-attribute analysis tech- tion of porosity in compacted sands,” Woronow, A., and Rockenbauch, K.,
niques. AAPG Memoir 69, 1997, pp. 19-27. “Predicting reservoir quality using lin-
• Nestvold, E.O., “The impact of 3D • Tobin, R.C., “Porosity prediction in ear regression models and neural net-
seismic data on exploration, field de- frontier basins: a systematic approach to works,” AAPG Memoir 69, 1997, pp.
velopment and production,” AAPG estimating subsurface reservoir quality 47-60.
Studies in Geology, No. 42, SEG Geo- from outcrop samples,” AAPG Memoir
physical Developments Series, No. 5, 69, 1997, pp. 1-18. 6. Cokrigging methods to re-
1996, pp.1-5. late seismic velocities to porosity
• Rankey, K.E., and Mitchell, J.C, 4. Seismic data modeling studies • Scerbo, F., and Mazzotti, A.,
“That’s why it is called interpretation: for reservoir prediction. “Geostatistical estimates of porosity
Impact of horizon uncertainty on seis- • Hart, B., and Chen, M.A., “Under- from seismic data,” Bollettino di Ge-
mic attribute analysis,” The Leading standing seismic attributes through for- ofisica Teorica ed Applicata, Vol. 33,
Edge, Vol. 22, No. 9, 2003, pp. 820-28. ward modeling,” Leading Edge, Vol. 23, No. 130-131, 1997, pp. 85-110.
• Russell, B., Hampson, D., No. 9, 2004, pp. 834-41.
Schuelke, J., and Quirein, J., “Multi- • Lecomite, I., Maao, F.A., and Bakke, 7. Experimental relationships
R., “Efficient and flexible seismic model- that provide porosity models for
ing of reservoir: a hybrid approach,” The describing the spatial distribution

combined with a reflection amplitude that 3D imaging may resolve include, and their characteristics. An analyst can
map produces an estimated porosity reservoir compartmentalization that re- use the reservoir quality indicator on
map of the entire field. Then the esti- quires significant infill drilling to maxi- the 3D seismic amplitudes to target
mated porosity combined with the in- mize recovery. Another issue is ques- well locations and map pore fill.
terpreted Wara structure can be ren- tionable fault continuity that imaging For example, flat spots representing
dered in 3D displays with existing or may resolve. positive acoustic impedance contrasts
proposed locations. The 3D seismic imaging also may for down-going waves can also estab-
This visually integrates the structural enhance the structural pattern of the oil lish the polarity of seismic section.
and porosity data in one display. field that may control the distribution From this, one can also establish the
of reservoirs. In the case of Al-Khafji oil relative acoustic impedance of the seal-
3D seismic imaging field, longitudinal and transverse faults ing shale and the sand below. At times,
Imaging 3D seismic enhances the also control reservoir distribution. sands can have lower impedances than
examination of complex geological sit- Reservoir quality prediction in the sealing shales because the polarity
uations and the planning for develop- sparse well grids is another issue that of the top reservoir could be the same
ment well locations. Typical problems has been addressed successfully with down the flank (at the oil-water con-
rigorous analysis of seismic amplitudes tact) as at any crestal bright spot.

50 Oil & Gas Journal / Feb. 28, 2005

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of porosity. These models also erties with case studies. SEG Geophysical Developments Se-
support the statistical models de- • Alexander, D.W., “Impact of 3D ries, No. 5, 1996, pp. 179-87.
rived by earlier authors. seismic data on reservoir characteriza- • Ssosna, R., and Bruner, K.R., “De-
• Marion, D., Nur, H. Yin, and Han, tion and development, Ghawar field, positional controls over porosity de-
D., “Compressional velocity and Saudi Arabia,” AAPG Studies in Geolo- velopment in lithic sandstones of the
porosity in sand-clay mixtures,” Geo- gy, No. 42, SEG Geophysical Develop- Appalachian basin: Reducing explo-
physics, Vol. 57, No. 4, 1992, pp. 554- ments Series, No. 5, 1996, pp. 205-10. ration risk,” AAPG Memoir 69, 1997,
63. • Dorn, G.A., Tubman, K.M., Cooke, pp. 249-65.
D., and Connor, R.O., “Geophysical
8. Experimental relationships reservoir characterization of Pickerill 12. Amplitude-variation-with-
among velocity, porosity, and clay Field, North Sea, using 3D seismic and offset (AVO) inversion algorithm
content. well data,” AAPG Studies in Geology, application to seismic-angle
• Mavko, G., and Nolen-Hoeksema, No. 42, SEG Geophysical Developments stacks and accurate maps of
R., “Estimation of seismic velocities at Series, No. 5, 1996, pp. 107-21. sandstone reservoirs and also the
ultrasonic frequencies in partially sat- • Mackie, S.I., and Gumley, C.M., prediction of the presence of hy-
urated rocks,” Geophysics, Vol. 59, “The Dirkala South Oil Discovery: Focus- drocarbons in a reservoir.
No. 2, 1994, pp. 252-58. ing on cost-efficient 3D-seismic reservoir • Jarvis, K., Folkers, A., and Mes-
delineation, Cooper/Eromanga Basin, dag, P., “Reservoir characterization of
9. Petrophysical properties in Central Australia,” AAPG Studies in Ge- the Flag Sandstone, Barrow Sub-
relation to porosity and velocity ology, No. 42, SEG Geophysical Devel- basin, using an integrated, multi-pa-
variations. opments Series, No. 5, 1996, pp. 83-85. rameter seismic AVO inversion tech-
• Vernik, L., and Nur, A., “Petro- • Raul, C.G., Arestad, J.F., Dagdelen, nique,” Leading Edge, Vol. 23, No. 8,
physical classification of siliciclastics K., and Davis, T.L., “Geostatistical simu- 2004, pp. 798-800.
for lithology and porosity prediction lation of reservoir porosity distribution
from seismic velocities,” AAPG Bul- from 3D, 3C seismic reflection and core 13. Seismic and well data inte-
letin, Vol. 76, No. 9, 1992, pp. 1295- data in the lower Nisku formation at Jof- gration for generating reservoir
1309. fre Field, Alberta,” AAPG Memoir 69, models, covering statistical analy-
1997, pp. 115-25. sis tools such as principal compo-
10. Reservoir quality predic- • Van de sande, J.M.M., “Prediction nents analysis (PCA) clustering
tion from integrated seismic–well of reservoir parameters from 3D seismic and multiple point simulation to
data using various statistical and data for the Zechstein 2 Carbonate play recognize characteristic deposi-
mathematical techniques. in the northeast Netherlands,” AAPG tional facies patterns from seis-
• Kupecz, J.A., Gluyas, J., and Studies in Geology, No. 42, SEG Geo- mic data and to connect the fa-
Bloch, S., “Reservoir quality predic- physical Developments Series, No. 5, cies geometries.
tion in Sandstones and Carbonates,” 1996, pp. 197-99. • Gilbert, R., Liu, Y., Abriel, W., and
AAPG Memoir 69, 1997, pp. 115-25. • Uffen, J.D., “Swan Hill Unit #1: Preece, R., “Reservoir modeling: inte-
Adding value with seismic data through grating various data at appropriate
11. Reservoir characterization reservoir delineation and characteriza- scales,” Leading Edge, Vol. 23, No. 8,
and prediction of reservoir prop- tion,” AAPG Studies in Geology, No. 42, 2004, pp. 784-88.

Imaging of 3D seismic can locate into reservoir parameters. dicted the gross reservoir porosity in
better field production boundaries to Cross plot regression analysis of several seismic locations away from
indicate untested structural blocks. This petrophysical parameters can provide wells in this basin.
was the case, particularly in the eastern similar relationships between a pair of
part of the Al-Khafji field area. The im- values of porosity, acoustic impedance, Future work
aging of closed-grid 3D seismic also permeability, and water saturation. Reservoir modeling is an evolving
aided in providing new concepts relat- The combination of petrophysics process and for evaluating the Al-Khafji
ed to the petroleum geology and spec- and geophysics is a tool that can help field all known exploration data needs
tral analysis of seismic attribute charac- develop seismic criteria for optimizing to be integrated into the models. The
teristics of Al-Khafji field. development well locations. In the Al- reservoir models will need to be con-
The study of 3D seismic attributes Khafji area, these analyses helped inter- tinually improved as new exploration
also aids the determination of reservoir pret and map the faults associated with data are obtained and incorporated.
composition, distribution, and lateral reservoirs, aiding future drilling plans. Geologists and geophysicists will
variations. These seismic data can also The resulting empirical amplitude- continue to struggle with improved da-
be inverted to acoustic impedance porosity relationships successfully pre- ta integration and continue to evaluate
(density and velocity) and transformed the uncertainty of estimating hydrocar-

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DRILLING & PRODUCTION

D ATA EVALUATION Fig. 9
Fig. 9a Fig. 9b
Confidence map Well porosity contours superimposed on seismic porosity map
48° 48 48° 52 48° 56 49° 00 49° 04 48° 48 48° 52 48° 56 49° 00 49° 04

Output data Gross porosity

N N
Frequency, n

0.0050

cu m/cu m
Error
0.0100
Gross porosity
Confidence map calculated
at each intersection point 0 8,000
0.0150
0 8,000
using cross validation. Meters Meters
Values indicate possible
error range.
290,000 300,000 310,000 290,000 300,000 310,000

Vertical time thickness contours superimposed Fig. 9c Sand volume fraction map on top of Wara fromation Fig. 9d
on seismic porosity map 48° 48 48° 52 48° 56 49° 00 49° 04 49° 08 Output data
48° 44 48° 48 48° 52 48° 56 49° 00 49° 0 04 49° 08
19945
20 95
20 45

160
21 95

5
21 45

0
15500
22 95
22 5
23495

15 50
23 45
24 95

14 00
24 45
25 95

14 50

Frequency, n
25 45
26 95
26 5

13 00
27495
27 45

13 50
28 95

Sand volume fraction

28 45

12 00
29 95
29 45

12 50
30 95
30 45

11 00
31

Gross porosity
31945

11 50
32 95
32 45

11 00
33 95

0.05
5
33 45
34 95

10 0
34 45
35 5

95 0
N N
356945
3 95

90 0
36 45
37 95

85 0
37 45
38 95

80 0
38 45
39 5

75 0
39945

0.05
40 95

70 0 0.15
40 45
41 95

65 0
41 45
42 95
42 45

60 0
43 5
43945

55 0
44 95
44 45

cu m/cu m
50 0
45 95
45 45

45 0
Sand volume fraction data
46 95
46 45

40 0
0.25
47 95
47

35 0
30 0
0
16050 25 0 0.01
cu m/cu m

15 00 20 0
15 50 15 0
14 00 10
14 50 50 0.35

Sand volume fraction

13 00
19945

13 50
20 95
20 45

12 00
21 95

5
21 45

0.15
22 95

12 50
22 45
23 5

11 00
23945

0.45
24 95

11 50
24 45
25 95

11 00
25 45
26 95

10 50
26 45
27 95

9 0
27
28495

90 0
28 45
29 95

85 0
29 45

5
30 95

80 0
0.55
30 45
31 95

75 0
31 5

0.20
32495

0 8,000 0 8,000
32 45

70 0
33 95
33 45

65 0
34 95
34 45

60 0
35 95
35 5

55 0
36495

Meters
36 45

50 0
37 95

Meters
37 45

45 0
38 95
38 45

40 0
39 95
39 45
40

35 0
40945
41 95

30 0
41 45
42 95

25 0
5
42 45
43 95

20 0
43 45
44 5
44945

15 0
45 95
45 45

10 0
46 95
46 45

5
47 95
47

280,000 290,000 300,000 310,000 290,000 300,000 310,000 Gross porosity

bon volumes with several data-mining permission to publish the results of this The authors
techniques. Many proven data-mining study. They also are grateful to Qasem Kalyan Chakraborty is a spe-
techniques including statistical tech- Al-Mejadi and Mubarak Al-Hajeri for cialist geophysicist with
niques will help establish the Al-Khafji their support. Thanks also go to Les Kuwait Gulf Oil Co. He previ-
field lateral and vertical reservoir limits Crowder, Aavo Taal, Hajime Kusaka, Ali ously worked for the Oil and
Natural Gas Commission, the
more precisely. Al-Najdi, and Humoud Al-Otaibi for Geological Survey of Western
The use of the amplitude-variation- their valuable technical comments. The Australia, and Petroleum Geo-
with-offset inversion technique also authors also thank N.L. Shastri for re- services, Australia. Chakraborty
may verify the increasing porosity in view and help with the manuscript. ✦ has an MSc Tech in applied
the eastern part of the main Al-Khafji geophysics from Indian School
field. Volume reflection spectrum and Reference of Mines and an MSc in petroleum exploration
neural networking may further refine 1. Al-Fares, A.A., Bouman, M., and from Curtin University of Technology, Perth, Aus-
the porosity data. Jeans, P., “A New Look at the Middle to tralia. He is a member of SEG, AAPG, PESA, and
AEG.
Other multipay horizons of Al-Khafji Lower Cretaceous Stratigraphy, Offshore
field also may benefit from similar Kuwait, GeoArabia,” Vol. 3, No. 4, Ahmad Mostafa is a senior
studies. Reservoir models generated in 1998, pp. 543-60. support administrator at
the present study may guide reservoir Kuwait Foreign Petroleum Ex-
engineers for further detailed modeling ploration Co. He previously
studies. worked as a geophysicist for the
Seismic trace characteristics such as General Petroleum Co., Geco-
frequency and time-domain analysis of Prakla (EAR), and Schlum-
berger-GeoQuest. Mostafa has a
seismic traces falling in and around the BS in geology from Cairo Uni-
main Al-Khafji field also will ascertain versity.
the spatial extension of reservoir facies.

Acknowledgments
The authors thank Kuwait Gulf Oil
Co. and Ministry of Energy, Kuwait for

52 Oil & Gas Journal / Feb. 28, 2005

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PROCESSING
The Russian gas industry occupies a • Western Siberia. The
major operational sector of the coun- gas processing branch is
try’s fuel and energy industry as well as represented by the Uren-
the national economy. goy plant that prepares
In 2003, Russian gas production condensate for trans-
amounted to 600 billion cu m (bcm). portation by rail or Gas Processing
The country’s energy strategy through pipeline in the city of
2010, as approved by the government Novy Urengoy and the Surgutsky plant
(Decree No. 1234-p; Aug. 28, 2003), for stabilized condensate.
envisions moderate increases in gas Hydrocarbon condensate is trans-
production up to 635-730 bcm. Rus- ported from the Urengoy plant to
sia’s annual gas production will reach Surgutsky plant by the existing conden-
770 bcm in 2020. The opti-
mistic case envisions a growth
to 750 bcm by 2010 and 900
bcm by 2020.
Gas processors in Western Siberia target
Nearly 80% of the explored
gas reserves are in West Siberia,
in Russia’s major gas production
higher production in plans through 2010
region, the Yamalo-Nenetsk Au-
tonomous District. Efficient manage- sate pipeline Urengoi-Surgut (698 km,
ment and use of the available hydrocar- 720 mm ID). Inlet capacity at Surgutsky Alexander N. Ryazanov
Vladimir V. Konyuchenko
bon feedstock requires upgrading the is 8 million tpy. Valery S. Plotnikov
existing gas processing plants and Sibur
building new ones. Associated gas production Moscow
Russian gas processing plants are
Gazprom’s facilities slowly but surely being upgraded and
The following gas processing facili- revamped with more modern processes
ties operate within the framework of and technologies. A significant amount
Gazprom: of overcapacity in Russia in 1990s de-
• Astrakhan region, the Astrakhan- layed expansions and improvements for
sky gas processing plant. For the last 10 these plants. In the next 5 years, the
years, gas production in the Astrakhan plants will complete construction proj-
region has increased fivefold, reaching ects started in the 1990s and begin
11 bcm in 2003. The purpose of the new projects.
Astrakhansky gas plant is to prepare In Russia, as a whole, resources of
and process natural gas and gas con- associated gas in 2003 amounted to
densate. Total output is 12 bcm/year in 50.1 bcm, including 38.1 bcm (76%)
natural gas and 3.0 million tonnes/year in western Siberia. Increases in domes-
(tpy) in stabilized and processed con- tic demand are slowly catching up to
densate. the potential supply from Russian gas
• Orenburg region, the Orenburgsky plants. Utilization in 2003 was about
gas processing plant and a helium fac- 77-78%, up from 71% in 2000.
tory. Maximum gas production in the Until now, 8-11 bcm/year of associ-
Orenburg region was 47 bcm/year in ated natural gas (Table 1) together with
mid 1980s; within the last 15 years, NGL obtained during oil production
production has steadily decreased, have been flared and continue to be
reaching 21 bcm in 2003. flared by oil companies.
A unique gas processing complex has This raw material is not supplied to
been built in the region whose produc- gas processing plants of western Siberia
tion capacity is utilized at barely half its
capacity at present because of the drop UTILIZATION OF ASSOCIATED OIL, GAS IN RUSSIA Table 1
in gas production. The Orenburgsky gas ––––––––––––– Russia ––––––––––––– –––––––– Western Siberia ––––––––
plant includes three processing units, Indices 2000 2001 2002 2003 2000 2001 2002 2003
each of which processes natural gas and Gas re-
gas condensate. The inlet capacity is 45 sources, bcm 40.0 37.4 44.3 50.1 29.4 30.3 35.7 38.1
Use of gas, bcm 28.3 29.9 32.8 38.9 23.5 24.2 26.1 29.8
bcm/year in gas processing and 12 mil- Flared gas, bcm 7.7 7.5 11.4 11.3 5.9 6.1 9.6 8.2
The level of gas
lion tpy in condensate. utilization,% 70.8 79.9 74.0 77.6 79.9 79.9 73.1 78.2

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PROCESSING
A LOOK AT WESTERN SIBERIA PROCESSING FACILITIES, PLANT Fig. 1

Novy Urengoy

Nadym Ymalo-Nenetsk
r

Autonomous District
R iv e

tr
en
y -Ts Gubkinsky GPP
Ob

go
en
Ur

Taz
R U S S I A

Ri v
Muravlenkovsky GPP Vyngayakhinskaya CS er

Noybrsk
Vyngapurovskaya CS

Nyagan Khanty-Mansiysk Kholmogorskaya CS Varyeganskaya CS

Bakhilovskaya CS
Autonomous District
Tyumenskaya CS
Nyagangazpererabotka Kogalym
Gas pipeline
Ob R i ver Langepas
Products pipeline
Surgut
Khanty-Mansiysk Nefteyugansk Facilities under construction
Ob
Pyt-Yakh Ri Gas processing plant
Yuzhno-Balyksky GPP Nizhnevartovsk

ve
Pa

r
Lokosovskaya CS rab Electric power station
e l-K
uz Operating and designed
ba
s s loading racks
olyab insk
o y-Sch
Ureng Operating and planned
compressor station
Tyumen Region
Future connection
Tobolsk to Gazprom

for different reasons: gotiations between Sibur and Gazprom, of light hydrocarbons.)
• Remoteness of small deposits from on the one side, and oil companies on In 2003, a total of 19.2 bcm of
gas zones. the other are ongoing. stripped gas, 3.3.million tonnes of
• Lack of collection, transportation, As a result, the producers of gas and ShFLU (including 1.67 million tonnes
and processing systems in oil compa- light hydrocarbon feedstock are cutting from JSC Sibur-Tyumen), 1.2 million
nies. flaring. The problems with western tonnes of LPG, and 634,000 tonnes of
• Lack of gas pipelines from oil Siberian oil companies are well known naphtha (Table 2) were produced in
companies to Sibur, owner of the gas in which these most valuable of gas Russia.
processing plants of western Siberia. products are making more pollution in
Sibur is JSC Sibirsko-Uralskaya Neftega- the region. Industry structure
zohimicheskaya Companiya, a vertically The main products of the gas pro- in western Siberia
integrated holding company that cessing plants include dry stripped gas The western Siberia associated-gas
processes large volumes of hydrocar- and liquid hydrocarbons C3+, known processing industry currently includes
bons in Russia and produces more than in Russian as “ShFLU,” a mixture of eight plants with total capacity of 25
100 petrochemical products. propane, butane, pentane, and hexane bcm/year (Fig. 1). All plants are sub-
The basic feedstock for Sibur’s prod- produced at the gas processing plants. sidiaries of integrated companies:
ucts is associated natural gas, a strategi- (ShFLU is a Russian language acronym • Lukoil owns and operates the
cally vital feedstock for the national for these components, a wide fraction Lokosovsky gas processing plant, 2.14
petrochemical industry. Its bcm capacity.
use is not only an economi- • Surgutneftegaz owns
cal but also an ecological is- MAIN PRODUCTS FROM RUSSIAN GAS PLANTS: 2003 Table 2
and operates the Surgutsky
sue in the effort to reduce Western OAO Sibur- gas processing plant, 4.28
Product Russia Siberia Tyumen
the adverse effects of the oil bcm capacity.
Stripped gas, bcm 19.2 17.7 9.6
and gas industry on the envi- ShFLU,* 1,000 tonnes 3,293.4 2,326.5 1,674.0 • Sibur owns and operates
ronment. In the last few LPG, 1,000 tonnes 1,175.3 16.2 13.3 six plants, discussed in the
Naphtha, 1,000 tonnes 634.4 335.9 243.9
years, Sibur has undertaken following section.
to solve these problems in *ShFLU = mixture of propane, butane, pentane, and hexane produced in Russia’s In western Siberia, Sibur
gas processing plants.
western Siberia. Difficult ne- controls most facilities for as-

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sociated-gas transportation Volga regions operates within

and processing. CAPACITIES, LOAD OF SIBUR-TYUMEN GAS PLANTS Table 3
the area from the loading
The production complex Gas rack at the Yuzhno-Balyksky
production
of JSC Sibur-Tyumen, an af- Capacity in 2003 gas plant to the Tobolsky
Gas plants ––––– Million cu m ––––– Load, %
filiate company of Sibur, petrochemical plant. All
consists of: Nizhnevartovsky 6,420 2,889 45 product pipelines lack reserve
Belozerny 4,280 2,410 56.3
• Six gas plants with total Yuzhno-Balyksky 1,500 802 53.4 lines, remote control systems,
capacity of 18.6 bcm. Nyagangazpererabotka* 2,140 553 25.8 and radio-relay communica-
Noyabrsky –– 1,991 ––
• Six compressor stations: Including Muravlenkovsky 2,140 1,018 47.5 tion.
Gubkinsky* 2,140 2,273 106.2
Tyumenskaya, Bakhilovskaya, –––––– –––––– –––– Investment by Sibur in
Varieganskaya, Vynga- Total 18,620 10,919 58.9 western Siberia through
purovskaya, Vyngayakhin- *Facilities operate without ShFLU output. 2010 targets stabilizing the
skaya, and Kholmogorskaya, operation of functioning fa-
total capacity of 9.6 bcm. cilities and building new ones. Priority
• A system of pipelines providing cussed were commissioned in the directions of the company’s develop-
gas and gas products transportation. 1970s and 1980s, with the design op- ment activities encompassed the avail-
The length of gas transportation net- erational periods of the main equip- able infrastructure, additional sources
work is 1,470 km; the products ment being 25-30 years. The plants of feedstock, and existing production
pipeline from the Belozerny gas plant were designed according to state-of- and transportation system.
to the Tobolsky petrochemical plant is the-art techniques for that time, which With an aim to achieve the selection
692 km. At present, only 7.1 bcm provided for 93-95% extraction of tar- of targeted components up to C3+ to
(65%) out of 11 bcm of associated gas geted components from the associated 93% and to organize the volume of
delivered to all eight plants are involved gas. Although the equipment remains ShFLU output up to 300,000 tpy, the
in processing designed to extract the in a satisfactory condition in most cas- Gubkinsky gas plant is planning to fin-
components of ShFLU. es, some parts of the facilities have be- ish construction of the first processing
Review of ShFLU potential feedstock come outmoded. Gas processing and unit with capacity to produce 300,000
base reveals that it suffers from, in many the transportation complex have not tpy of ShFLU and to finish construction
instances, the unavailability of safe changed radically in the past 2 years, of the products pipeline between the
transportation in gas and gas products but there are some positive trends. Gubkinsky gas plant and the conden-
pipelines. Large losses result by both Implementation of the program to sate pipeline between Urengoi and
ShFLU producers in western Siberia and renovate and modernize gas processing Surgut.
consumers in the Urals and Volga re- and transportation will continue during Total 2003-04 investment amounted
gions are known to Sibur and other 2005-10. to about $10 million. In 2005, the
petrochemical manufacturers in Russia. The 500-700 mm ID products company plans to spend $12 million of
These companies could have accept- pipeline from the Gubkinsky gas plant capital investments with a payback pe-
ed and transferred up to 5 million tpy to the Tobolsk petrochemical plant, riod of 2.5 years.
by 2005 and up to 7 million tpy which produces monomers, has started Construction of a loading rack with
through 2010. The volume of ShFLU a fundamental reconstruction. A a commodity park near the city of
produced and transported by Sibur at pipeline from the Belozerny gas plant Noyabr’sk to distribute ShFLU, pro-
present is roughly equal to the ShFLU to the Yuzhno-Balyksky gas plant is part duced at the Gubkinsky and Mu-
produced by Gazprom. Gazprom fore- of the pipeline from the Gubkinsky gas ravlenkovsky gas plants, will ensure a
casts increased production of liquid hy- plant to the Tobolsk. It has only recently steady shipment of products at
drocarbons of up to 26 million tpy dur- been built. A segment of the pipeline 600,000 tpy. Sibur estimates construc-
ing 2010-15 and, therefore, the output from the Nizhnevartovsky gas plant to tion will cost $40 million.
of ShFLU will increase to 5 million tpy. the Yuzhno-Balyksky plant operates An investment offer has been devel-
temporarily with line pipe not de- oped to establish a complex of facilities
ShFLU processing, signed for it. for ShFLU shipment from Nya-
transportation, a 5-year outlook The 700-mm ID products pipeline gangazpererabotka. The loading rack
The production facilities just dis- from western Siberia to the Urals and with the products pipeline constructed
at the terminal of Soim will allow the
OUTPUT BY SIBUR PLANTS plant to produce up to 2 million tpy of
Table 4
ShFLU, thus ensuring output and rais-
Commodity
output 2004 2005 2006 2007 2008 2009 2010 ing economic indicators. The volume of
capital investment amounts to $32 mil-
Dry stripped gas,
million cu m 9,333 10,651 12,562 13,266 13,532 13,753 13,787 lion with a discount payback period of
ShFLU, 3.6 years.
1,000 tonnes 2,173 2,232 2,752 3,319 3,375 3,415 3,442
Gas naphtha, After construction of Bakhilovskaya
1,000 tonnes 199 204 251 302 307 310 312
compressor station with a downstream

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Sibur gas cross-country pipeline, it will the commodity output by Sibur’s facili-
become possible to dry, compress, and ties with reconstruction and proposals
transfer to the Belozerny and Nizh- as to additional loading taken into con-
nevartovsky gas plants all resources of sideration.
the associated gas from the Gazprom and Sibur are steadily de-
Bakhilovskaya group of deposits, name- veloping and implementing invest-
ly, 1.4 bcm/year. The total investment ment projects that will permit reduc-
will reach $6 million, with a payback tion of associated gas losses in western
period of 1.2 years. Siberia, increase output of gas-plant
In 2003-04, the company spent $4 products, and improve technical and
million, which allowed the economic indicators of the company
Bakhilovskaya compressor station to as a whole. ✦
supply 400 million cu m of gas for
processing and to produce additionally The authors
132,000 tonnes of ShFLU. Alexander N. Ryazanov was ap-
The construction of the Lokosov- pointed deputy chairman of the
skaya compressor station is to connect board of Gazprom in 2001
the gas processing plants in the Nizh- and is currently chairman of
the board of directors in JSC
nevartovsk region to the Urengoy- Sibur. In 1999 he was elected
Schelyabinsk gas pipeline. The facility’s a deputy to the State Duma,
output is 2.5 bcm/year; capital invest- the Russian Federation’s Federal
ment is $31 million. Assembly. He previously occu-
Reconstruction and upgrading of the pied positions as deputy chair-
Yuzhno-Balyksky gas plant includes man of the Committee for Property and deputy
commissioning of a gas processing unit chairman of the Committee for Protection of In-
with a propane refrigeration unit. In vestors’ Rights. In 1988-94, he was general direc-
tor at Surgutsky gas processing plant. Ryazanov
addition, Sibur plans to finish construc- graduated from I.M. Gubkin Institute of Petro-
tion of a booster plant with an in- chemical and Gas Industry, Moscow, and All-
creased capacity and a downstream Union Correspondence Financial-Economic Insti-
takeaway pipeline to the Gazprom tute.
cross-country pipeline between Uren-
goi and Chelyabinsk. Vladimir V. Konyuchenko is
Thus, steady processing of up to 3 deputy head of the directorate
bcm will be ensured with gas from Pri- for raw hydrocarbon at Sibur,
has been general director of JSC
obsky and Prirazlomny deposits, and Sibur-Tyumen Gas from
ShFLU output will rise to 800,000 2002. Since 1995 he has been
tonnes. Preliminary investments will director for development of the
reach 669 million rubles, with a pay- raw base and vice-president in
back period 2.4 years. At present, the Sibur. He has been working for
final volume of investments is being as- 30 years in western Siberia
sessed by the institute NIPIgazper- engaged in field preparation of oil and use of asso-
erabotka, in Krasnodar. ciated gas. In 1974 he graduated from I.M.
Gubkin Institute of Petrochemical and Gas Indus-
Reconstruction and upgrading of the try, Moscow, in design and maintenance of oil
ShFLU products pipeline from the Be- pipelines, gas storage, and petroleum storage depots.
lozerny gas plant to the Tobolsky petro-
chemical plant targeted to achieve the Valery S. Plotnikov (Plotnikov
performance requirements will reduce @sibur.ru) is a deputy direc-
the risk of gas processing facilities lay- tor of department of gas pro-
offs, will stabilize ShFLU production. cessing and modernization in
Capital investment for 2004 reached $4 Sibur Co. He was recently gen-
eral manager of the Gubkinsky
million. gas processing plant in West
Total output by West Siberia Sibur Siberia. He has also worked for
facilities with reconstruction and pro- 1993-96 for Poten & Partners
posals as to additional loading taken in- Inc., New York. Plotnikov holds
to consideration reached $16 million an MS in chemical engineering from Kazan
for 2004 and may amount to $96 mil- Chemical Engineering Institute and MBA in
lion for 2005. process management from Azerbaijan Oil and
Table 4 shows the total volume of Chemistry Institute.

56 Oil & Gas Journal / Feb. 28, 2005

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TRANSPORTATION
A mobile version of based cleanup levels and achieve final
the dual-phase extraction closure of the case.
(DPE) process for reme- Some proposals recommended tradi-
diating sites affected by tional technologies to clean up this site.
petroleum product releas- These technologies included pump and
es has been used effec- treat, air sparge-vapor extraction, and
tively in emergency re- Pipelines passive extraction using sorbent socks
sponse and where the in the well bores. Due to the shallow
cost of a fixed DPE system was not jus- depth of groundwater and low perme-
tified. able lithology, Cinnabar Environmental
DPE technology removes free prod- Services, Tulsa, recommended MDPE
uct from groundwater and reduces dis-
solved-phase contaminant concentra-
tions in groundwater.
The mobile version, Mobile Dual Mobile extraction process provides
Phase Extraction (MDPE), has been
used to remove gasoline, aviation fuel,
kerosine, and diesel. Due to the emis-
effective site remediation
sion of hydrocarbon-impacted off-gas
during these events, emission-control technology to remove the free product
equipment, such as a thermal oxidizer, and achieve the required cleanup levels
is normally used to ensure compliance at this site.
with air emission standards. Traditional pump and treat would James F. Sieck
Explorer Pipeline Co.
Although maximum vacuum extrac- not be cost effective in remediating this Tulsa
tion depth of a liquid column is limit- site because it possibly could recover
ed to 1 atm, or about 34 ft below large volumes of groundwater that A.J. Andary
ground level, the simultaneous recovery would require pretreatment and dispos- Cinnabar Environmental Services
of vapor with the liquid phase reduces al. Also, air sparge and vapor extraction Edmond, Okla.
the hydrostatic head of the column and would be limited in removing free
increases the recovery depth signifi- product and reducing hydrocarbon
cantly. DPE technology has been used to contaminants in the subsurface. MDPE,
recover fluids from depths up to 80 ft with its high vacuum pressure and high
below ground level. flow rate recovery, would be more ef-
fective in removing liquid product, im-
Storage project pacted groundwater, and hydrocarbon
In December 2002, Explorer vapor.
Pipeline Co. discovered a gasoline re- The high vacuum pressure generated
lease at its Glenpool, Okla., storage ter- by MDPE—20-25 in. Hg, compared to
minal near Tulsa. Initial site in-
vestigation confirmed the sub-
surface soil and groundwater M ONITORING WELL MW-9 Fig. 1

near the point of release were af- 25

fected by petroleum products.
In January 2003, geoprobe
holes confirmed and delineated 20
Concentration, mg/l.

the gasoline plume. Free product

was recorded in 21 test holes 15 Benxene
with a thickness ranging from Toluene
sheen to 2 in. Ethylbenzene
In a response to remediate the 10
Xylenes
affected site, Explorer Pipeline
solicited proposals from various THP-GRO
5
environmental consulting firms
to remove separated phase prod-
uct and reduce hydrocarbon con- 0
Oct. 24, 2003 Feb. 3, 2004 Apr. 21, 2004 May 21, 2004
taminants in the soil and Date
groundwater to the Oklahoma
Corporation Commission’s risk-

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TRANSPORTATION
8-9 in. Hg for the traditional vapor ex-
traction blowers—lifts liquid and vapor
simultaneously and overcomes the cap-
illary forces in the vadose to release hy-
drocarbons adsorbed to soil.
When not removed, these entrapped
hydrocarbons present a continued
source of contamination to groundwa-
ter through infiltration and rising
groundwater. High vacuum pressure
applied to the smear zone also lowers
the vapor pressure of hydrocarbons that
will subsequently allow hydrocarbon
molecules to volatize.

Remedial plan
In October 2003, nine soil borings-
groundwater monitoring wells were in-
stalled in an area within the suspected
hydrocarbon plume. The wells, desig-
nated MW-1 through MW-9, were The mobile dual-phase extraction unit performs the first of four extraction events at Explorer Pipeline’s
drilled to about 9 ft below ground sur- Glenpool tank farm in November 2003 (Fig. 2).
face (bgs) with the exception of MW-
6, which was drilled to a depth of 14 ft benzene concentration in soil samples hydrocarbon reduction in groundwater.
bgs. During the well installations, was 2.04 mg/kg in MW-1, and 1.68 Following the May 2004 MDPE event,
groundwater was encountered at 2.0- mg/kg in MW-5. The corresponding sampling data suggested that hydrocar-
7.5 ft bgs. Free product was detected in TPH-GRO concentrations in these bor- bon concentrations in groundwater in
one monitoring well. All monitoring ings were 332 mg/kg and 229 mg/kg, MW-1 had decreased while hydrocar-
wells were completed with 5 ft of 2-in. respectively. bon concentrations in MW-2, MW-3,
slotted screen. In October 2003, the monitoring and MW-4 had increased slightly.
MW-1 through MW-5 and MW-9 wells were gauged, developed, and Small increases in concentrations at
were used for recovery of free product, sampled for laboratory analyses of some monitoring points are not unusu-
while MW-6, MW-7, and MW-8 were BTEX and TPH-GRO concentrations. Ap- al due to the dynamics of the extraction
used to assess and monitor plume mi- proximately 0.25 in. of free product process and the possibility of hydrocar-
gration toward a nearby creek. Subsur- was recorded in MW-5. Depth to bons being released from the vadose
face soil in the impacted area was char- groundwater during the sampling event zone. It is important to remember that
acterized as dense clay with rock frag- ranged from 3.29 ft to 8.43 ft bgs. All the success of the process is based on
ments from surface to about 4-6 ft bgs, monitoring wells were surveyed for the “net” effect that MDPE has on the
and clay, silty clay, and weathered sand- casing elevations. Well survey data and groundwater system being treated.
stone to total depth. water elevation suggested that ground- Concentrations in groundwater in
Soil borings were completed using water flow was to the north-northeast the remaining wells—especially at the
hollow stem augers and 5-ft continu- toward the creek. eastern perimeter of the plume—had
ous sampling tubes. A representative Groundwater laboratory analysis in- decreased or remained stable. Fig. 1
sample from each foot of core was dicated that the groundwater was af- shows the contaminants reduction in
placed in plastic bags for headspace fected by petroleum hydrocarbons. The MW-9. Based on the calculated hydro-
screening. highest benzene concentration was carbons removed by the DPE process,
A photo ionization detector (PID) recorded in Monitoring Well MW-1 as we suspected that a great portion of the
was used to screen soil samples for hy- 9.270 mg/l. The corresponding TPH- hydrocarbons removed might have
drocarbon vapor. One soil sample with GRO concentration in MW-1 was 71.2 come from the vadose where they were
the highest PID reading from each bor- mg/l. not detected during the initial investi-
ing was submitted to a state-certified gation.
laboratory for analyses of benzene, MDPE application
toluene, ethylbenzene, xylenes (BTEX), Following groundwater sampling, High vacuum,
and total petroleum hydrocarbon gaso- MDPE was performed at the site in No- dual-phase extraction
line range organics (TPH-GRO). vember 2003. Four MDPE events were Envac Environmental Services LLC
Soil laboratory analyses indicated the performed in November 2003 through (Envac), Tulsa, performed the MDPE
subsurface soil had been affected by pe- May 2004. After each MDPE event, events at the Explorer Pipeline facility.
troleum hydrocarbons. The highest groundwater was sampled to evaluate Envac used a self contained, truck-

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mounted unit that consisted ered as vapor.

of a high- vacuum-pressure Using the laboratory
liquid ring pump, a water- analysis of the recovered
storage tank, and a thermal groundwater samples and
oxidizer (Figs. 2 and 3). the volumes of recovered
Before each extraction water, it was estimated that
event, the monitoring wells 97 gal of equivalent gaso-
were gauged for depth-to- line were recovered as liq-
groundwater as well as free- uid. A total of 111 gal was
product thickness. The first removed by the high vacu-
extraction event was per- um extraction events as va-
formed on all monitoring por and liquid.
wells, while the remaining Although the gasoline re-
extraction events were per- lease at the Explorer Pipeline
formed on MW-2, MW-3, facility was not a major re-
MW-4, and MW-5, all with- lease, MDPE was successful
in the bulk of the affected in extracting, under high
plume. vacuum pressures, hydrocar-
During the extraction, bons at the water interface
multiple wells were mani- as well as the unsaturated
folded to the pump unit at Three groundwater monitoring wells are manifolded to the mobile dual-phase zone. Hydrocarbon contami-
one time for several hours, extraction unit at Explorer Pipeline’s tank farm (Fig. 3). nants in ground water were
followed by the remaining reduced to risk-based levels
wells. At the end of each extraction with hydrocarbon concentrations of that allowed the Oklahoma Corporation
event a sample of the recovered water 580-9,300 ppm. A total of 1,416 gal of Commission to close this case. ✦
was collected and submitted for labora- liquid was extracted from monitoring
tory analyses of BTEX and TPH-GRO. wells during this event. The authors
During the November 2003 extrac- During the March 2004 extraction James F. Sieck is corporate di-
tion event, depth-to-groundwater in event, average depth-to-groundwater in rector of health, safety, security,
monitoring wells ranged from 5.7 ft monitoring wells was about 2.69 ft and environmental for Explorer
Pipeline Co.,Tulsa. Sieck has
below top of casing in MW-2 to 9.51 bgs. A thickness of 0.01 ft of free prod- spent more than 25 years in
ft. Free product thicknesses of 0.02 ft uct was recorded in MW-1. Vapor ex- the petroleum industry, includ-
and 0.01 ft were recorded in MW-1 traction ranged from 72 cfm to 138 ing 10 years in exploration and
and MW-2, respectively. Extraction was cfm at a vacuum pressure of 21-23 in. production and 15 years on
accomplished with stingers at about 1- Hg (10.3-11.3 psi) with hydrocarbon product pipelines. During that
2 ft below groundwater level. concentrations of 300-6,000 ppm. A time he has held a number of
Vapor removal ranged from 64 cfm total of 1,469 gal of liquid was recov- engineering, operations, and management positions.
to 110 cfm throughout this event with ered during this event. Sieck holds a BS in petroleum engineering from
the University of Wyoming and an MS in envi-
hydrocarbon concentrations ranging The fourth event was a 12-hr vacu- ronmental engineering from Oklahoma State Uni-
from 800 ppm to 2,900 ppm. Vacuum um event that was performed in May versity. He is a registered professional engineer in
in the liquid ring pump’s inlet stream 2004. Average depth to groundwater in Oklahoma and Texas and a certified hazardous
was maintained at about 22 in. Hg monitoring wells was 5.32 ft bgs. No materials manager.
(11.0 psi). A dilution relief valve at the free product was recorded in any of the
liquid ring pump was also used to con- monitoring wells. Vapor extraction A.J. Andary is an engineering
trol vacuum pressures. ranged from 72 cfm to 138 cfm at a manager for Cinnabar Environ-
Bleed valves were used to enhance vacuum pressure of 22-24 in. Hg mental Services, Edmond, Okla.
He has 15 years’ experience in
the extraction of free product and af- (10.8-11.8 psi) with hydrocarbon con- environmental engineering and
fected water at the wellheads. In addi- centrations of 590-5,300 ppm. A total management. His environmen-
tion to the vapor removal, about 1,260 of 1,780 gal of liquid was recovered tal engineering experience in-
gal of impacted groundwater were also during this event. cludes air pollution control,
removed during this remedial event. During the multiphase extraction wastewater treatment, haz-
During the December 2003 extrac- events, hydrocarbons were removed as ardous waste management, un-
tion event, average depth-to-groundwa- vapor and liquid phase. Vapor recovery derground storage tank site investigation, remedial
ter was about 2.16 ft bgs. A thickness system design, planning,
rates and total hydrocarbon concentra- and operation and maintenance coordination, installation,
of treatment facili-
of 0.01 ft of free product was recorded tions were used to estimate the vol- ties. Andary holds a degree in chemical engineering
in MW-1. Vapor removal ranged from umes of equivalent hydrocarbons from the University of Oklahoma, and he is a
72 cfm to 132 cfm at a vacuum pres- (gasoline) removed as vapor. About 14 registered professional environmental engineer in
sure of 21-24 in. Hg (10.3-11.8 psi) gal of equivalent gasoline were recov- Oklahoma.

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E q u i p m e n t /
S o f t w a r e /
L i t e r a t u r e
Subsea Pipeline
Guidelines for seismic design, assessment of pipelines
Engineering Pipeline Research Council International Inc., Arlington, Va.,
has released new guidelines for the assessment of natural gas
• An In-Depth Guide • and liquid hydrocarbon pipelines subjected to seismic-related
loading conditions.
This new text represents the first of its kind. The guidelines are believed to be representative of, and con-
Veteran subsea pipeline engineers Andrew sistent with, current pipeline industry practices in seismically
Palmer and Roger King bring you valuable active regions. The specific procedures contained in these
information through their combined
guidelines are related to determining the severity of seismic
experience on the current state-of-the-art
hazards and the pipeline response to these hazards (e.g., lique-
methods of subsea pipelines. They cover such
topics as route selection, carbon-manganese faction, fault displacement, slope instability).
steels, corrosion, welding, hydraulics, repair, Source: Technical Toolboxes Inc., Box 980550, Houston, TX
and much more. 77098.

Contents: Remote monitor helps improve refinery, storage safety

• Introduction • Route selection • Carbon- Skymetry, a wireless, remote monitoring device, is designed
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cathodic protection, and concrete • Pipeline ty managers.
hydraulics • Strength • Stability • Construction
It monitors and controls equipment and environmental con-
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ditions using eight dry inputs, six analog inputs, built-in power
• Inspection • Risk, accidents, and repair
• Decommissioning • Future development failure detection, and two relay outputs.
• Glossary • Codes and standards • Units The unit includes the Skymetry software package for
Windows with access to a web site—www.skymetry.com—so


















Key Features & Benefits: that managers can remotely monitor input and output status and
• Contains valuable information from course alarm history. Managers also can program the unit or control
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• First text covering subsea pipeline operation allow the device to:
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• Learn to effectively lay pipeline at great sea • Notify producer of separation tank trouble.
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• Initiate shutdown on loss-of-pressure.
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60 Oil & Gas Journal / Feb. 28, 2005

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6 am Monday morning...
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Statistics
BAKER HUGHES RIG COUNT OGJ PRODUCTION REPORT
Editor’s note: Due to a holiday in the US, API
data were not available at presstime.

OGJ GASOLINE PRICES 2-18-05 2-20-04 1

2-18-05 2
2-20-04
–—— 1,000 b/d —–—
Price Pump Pump Alabama ............................................ 4 3
Alaska ................................................ 12 12 (Crude oil and lease condensate)
ex tax price* price Alabama ........................................ 16 22
2-16-05 2-16-05 2-18-04 Arkansas ............................................ 0 7
California ........................................... 27 20 Alaska ............................................ 967 943
————— ¢/gal ————— California ....................................... 753 740
Land ................................................. 21 19
Offshore .......................................... 6 1 Colorado ........................................ 52 57
(Approx. prices for self-service unleaded gasoline) Florida ............................................ 8 8
Atlanta .......................... 157.0 188.1 155.5 Colorado ............................................ 71 46
Florida ................................................ 2 0 Illinois ............................................ 30 31
Baltimore ...................... 149.0 190.9 172.1 Kansas ........................................... 85 87
Boston .......................... 152.2 194.1 170.2 Illinois ................................................ 0 0
Indiana ............................................... 0 0 Louisiana ....................................... 1,370 1,478
Buffalo .......................... 144.8 195.9 180.6 Michigan ....................................... 17 14
Miami ........................... 133.9 182.5 166.2 Kansas ............................................... 8 7
Kentucky ............................................ 3 2 Mississippi .................................... 48 46
Newark ......................... 153.6 186.5 162.6 Montana ........................................ 59 56
New York ...................... 147.4 198.5 186.2 Louisiana ........................................... 196 165
N. Land ............................................ 46 34 New Mexico .................................. 181 170
Norfolk .......................... 145.1 182.5 158.5 North Dakota ................................. 86 80
Philadelphia .................. 151.2 196.5 170.2 S. Inland waters .............................. 28 17
S. Land ............................................ 36 28 Oklahoma ...................................... 167 176
Pittsburgh ..................... 151.0 196.3 160.5 Texas ............................................. 1,355 1,427
Wash., DC .................... 161.1 199.5 168.2 Offshore .......................................... 86 86
Maryland ........................................... 0 0 Utah ............................................... 35 36
PAD I avg.................. 149.7 191.9 168.3 Wyoming ....................................... 139 145
Michigan ........................................... 3 2
Mississippi ........................................ 8 9 All others ....................................... ——–66 —— 68
Chicago ......................... 172.0 217.1 188.1
Cleveland ...................... 153.7 196.1 170.5 Montana ............................................ 24 13 Total ......................................... 5,434 5,584
Des Moines .................. 140.6 180.3 155.2 Nebraska ........................................... 0 0 1
New Mexico ...................................... 71 62 OGJ estimate. 2Revised.
Detroit .......................... 138.0 183.6 166.5
Indianapolis .................. 141.0 182.7 166.1 New York ........................................... 2 6 Source: Oil & Gas Journal.
Kansas City ................... 138.4 173.8 150.5 North Dakota ..................................... 18 11 Data available in Oil & Gas Journal Energy Database.

US CRUDE PRICES
Louisville ...................... 134.7 174.5 164.1 Ohio ................................................... 10 6
Memphis ...................... 142.7 182.5 160.1 Oklahoma .......................................... 157 145
Milwaukee ................... 146.6 196.5 172.5 Pennsylvania ..................................... 11 13
Minn.-St. Paul .............. 146.1 186.5 166.2 South Dakota ..................................... 1 1 $/bbl* 2-11-05
Oklahoma City .............. 137.7 173.1 146.2 Texas ................................................. 555 482
Omaha .......................... 142.5 186.4 160.2 Offshore .......................................... 12 13 Alaska-North Slope 27° ....................................... 33.73
St. Louis ........................ 147.1 182.5 166.5 Inland waters .................................. 0 3 South Louisiana Sweet ........................................ 44.00
Tulsa ............................. 134.6 170.0 150.2 Dist. 1 .............................................. 12 13 California-Kern River 13° ..................................... 33.50
Wichita ......................... 136.4 179.8 160.5 Dist. 2 .............................................. 23 31 Lost Hills 30° ........................................................ 40.30
PAD II avg................. 143.5 184.4 162.9 Dist. 3 .............................................. 71 44 Wyoming Sweet................................................... 44.50
...................................... Dist. 4 .............................................. 69 76 East Texas Sweet ................................................. 47.77
Albuquerque ................. 150.9 187.3 156.2 Dist. 5 .............................................. 63 58 West Texas Sour 34° ........................................... 38.75
Birmingham .................. 142.6 182.0 160.5 Dist. 6 .............................................. 92 59 West Texas Intermediate ..................................... 45.00
Dallas-Fort Worth ......... 145.4 183.8 157.2 Dist. 7B ............................................ 9 6 Oklahoma Sweet .................................................. 45.00
Houston ........................ 144.4 182.8 160.5 Dist. 7C ............................................ 37 29 Texas Upper Gulf Coast ........................................ 42.75
Little Rock ..................... 140.9 180.8 154.2 Dist. 8 .............................................. 47 49 Michigan Sour ...................................................... 41.00
New Orleans ................ 139.0 177.4 160.5 Dist. 8A ........................................... 16 17 Kansas Common................................................... 44.00
San Antonio .................. 136.4 174.8 150.1 Dist. 9 .............................................. 41 43 North Dakota Sweet ............................................ 42.30
PAD III avg................ 142.8 181.3 157.0 Dist. 10 ............................................ 63 41
*Current major refiner’s posted prices except North Slope lags
Utah ................................................... 28 19 2 months. 40° gravity crude unless differing gravity is shown.
Cheyenne ...................... 147.4 179.8 155.5 West Virginia .................................... 15 16
Wyoming ........................................... 67 64 Source: Oil & Gas Journal.
Denver .......................... 145.5 185.9 156.2 Data available in Oil & Gas Journal Energy Database.
Salt Lake City ............... 144.7 187.6 165.2 Others—NV-1VA-1 ........................... ——–2 ——–3

WORLD CRUDE PRICES

PAD IV avg. .............. 145.9 184.5 159.0 Total US 1,295 1,114
Total Canada .............................. ——–589 ——–574
Los Angeles .................. 145.5 196.3 190.2
Phoenix ......................... 148.4 185.8 160.6 Grand total .................................. 1,884 1,688
Oil rigs ............................................... 197 155 $/bbl1 2-11-05
Portland ........................ 149.8 192.2 170.6
San Diego ..................... 147.5 198.3 180.3 Gas rigs ............................................. 1,096 954 United Kingdom-Brent 38° ..................................... 43.39
San Francisco ............... 154.0 204.8 198.5 Total offshore .................................... 107 100 Russia-Urals 32° .................................................... 38.44
Seattle .......................... 148.7 195.1 163.5 Total cum. avg. YTD ....................... 1,263 1109 Saudi Light 34°....................................................... 36.93
PAD V avg. ............... 149.0 195.4 177.3 Dubai Fateh 32° ..................................................... 38.20
Week’s avg. ................ 145.9 187.4 165.1 Rotary rigs from spudding in to total depth. Algeria Saharan 44°............................................... 43.73
Jan. avg. ..................... 130.4 171.9 158.6 Definitions, see OGJ Sept. 22, 1997, p. 46. Nigeria-Bonny Light 37°......................................... 43.69
Dec. avg. ..................... 136.5 178.0 151.1 Indonesia-Minas 34°.............................................. 42.88
2005 to date ................ 135.8 177.3 .. Source: Baker Hughes Inc. Venezuela-Tia Juana Light 31° .............................. 38.38
2004 to date ................ 119.0 160.5 .. Data available in Oil & Gas Journal Energy Database. Mexico-Isthmus 33° ............................................... 38.27
OPEC basket ........................................................... 40.30
*Includes state and federal motor fuel taxes and state Total OPEC2 ............................................................. 39.59
sales tax. Local governments may impose additional taxes.
Source: Oil & Gas Journal.
Data available in Oil & Gas Journal Energy Database.
SMITH RIG COUNT Total non-OPEC2......................................................
Total world2 ............................................................
US imports3 ............................................................
40.71
40.40
36.58

REFINED PRODUCT PRICES

2-18-05 2-20-04 1
Proposed depth, Rig Percent Rig Percent Estimated contract prices. 2Average price (FOB) weighted
ft count footage* count footage* by estimated export volume. 3Average price (FOB) weighted
2-11-05 2-11-05 by estimated import volume.
¢/gal ¢/gal 0-2,500 22 — 35 5.7 Source: DOE Weekly Petroleum Status Report.
2,501-5,000 63 44.4 87 48.2 Data available in Oil & Gas Journal Energy Database.
Spot market product prices 5,001-7,500 159 23.8 146 30.1

Motor gasoline
Heating oil
No. 2
7,501-10,000
10,001-12,500
290
271
4.8
6.6
224
269
10.7
12.6 US NATURAL GAS STORAGE1
(Conventional-regular) New York Harbor ....... 130.63 12,501-15,000 266 0.3 211 –– 2-11-05 2-4-05 Change
New York Harbor ............ 123.50 Gulf Coast ................. 125.43 15,001-17,500 106 — 82 — –———— Bcf ————–
Gulf Coast ...................... 124.50 Gas oil 17,501-20,000 59 — 66 —
Los Angeles .................... 149.87 ARA ....................... 126.73 20,001-over 20 — 20 — Producing region ............... 576 599 –23
Amsterdam-Rotterdam- Singapore.............. 123.33 Total 1,256 7.8 1,140 12.8 Consuming region east ..... 984 1,043 –59
Antwerp (ARA) ........... 119.54 Consuming region west .... ——– 248 ——–264 –16
—––
Singapore ..................... 124.40 Residual fuel oil INLAND 27 19 Total US ........................... 1,808 1,906 –98
Motor gasoline ............... New York Harbor .... 71.74 LAND 1,157 1,039 Change,
(Reformulated-regular) Gulf Coast ............... 60.71 OFFSHORE 72 82 Nov. 04 Nov. 03 %
New York Harbor ......... 123.75 Los Angeles ............ 81.98 2
Gulf Coast .................... 126.38 ARA ......................... 65.39 *Rigs employed under footage contracts. Total US .......................... 3,245 3,038 6.8
Los Angeles ................. 155.87 Singapore ................. 73.00 1
Working gas. 2At end of period.
Source: Smith International Inc. Source: Energy Information Administration
Source: DOE Weekly Petroleum Status Report. Data available in Oil & Gas Journal Energy Database. Data available in Oil & Gas Journal Energy Database
Data available in Oil & Gas Journal Energy Database.

62 Oil & Gas Journal / Feb. 28, 2005

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Statistics
WORLD OIL BALANCE OECD TOTAL NET OIL IMPORTS
–— 2004 —– —– 2003 —– —– 2003 —– Chg. vs.
3rd 2nd 1st 4th 3rd 2nd previous
qtr. qtr. qtr. qtr. qtr. qtr. Oct. Sept. Aug. Sept.* ——– year ——
————————– Million b/d ————————– 2004 2004 2004 2003 Volume %
–———————— Million b/d ––——————–
DEMAND
OECD Canada .............................. –1,054 –856 –922 –1,004 –50 5.0
US & Territories .................... 20.94 20.62 20.77 20.61 20.57 20.01 US ...................................... 12,245 11,571 12,399 11,402 843 7.4
Canada .................................. 2.25 2.25 2.27 2.24 2.20 2.16 Mexico ............................... –1,801 –1,876 –1,784 –1,912 111 –5.8
Mexico .................................. 2.02 2.02 2.02 2.03 2.02 2.03 France ................................ 1,983 1,973 1,849 1,862 121 6.5
Japan ................................... 5.20 4.95 6.06 5.76 5.04 5.17 Germany ............................ 2,646 2,521 2,594 2,692 –46 –1.7
South Korea .......................... 1.99 2.01 2.29 2.34 1.95 2.00 Italy .................................... 1,502 1,757 1,723 1,738 –236 –13.6
France ................................... 2.00 1.96 2.13 2.10 2.07 1.96 Netherlands ....................... 908 751 1,102 646 262 40.6
Italy ...................................... 1.89 1.85 1.88 1.90 1.87 1.84 Spain ................................. 1,496 1,574 1,489 1,559 –63 –4.0
United Kingdom .................... 1.83 1.88 1.85 1.75 1.69 1.70 Other importers ................ 3,860 3,942 3,930 3,975 –115 –2.9
Germany................................ 2.73 2.54 2.65 2.65 2.65 2.72
Other OECD Norway .............................. –2,568 –3,000 –2,340 –3,055 487 –15.9
Europe .............................. 7.29 7.18 7.27 7.36 7.18 6.97 United Kingdom ................. –299 24 –562 –453 154 –34.0
Australia & New Total OECD Europe .... 9,528 9,542 9,785 8,964 564 6.3
Zealand ............................. 1.05 1.03 1.03 1.06 1.04 1.02 Japan ................................. 5,393 5,014 5,256 4,926 467 9.5
Total OECD ..................... 49.22 48.29 50.22 49.80 48.28 47.58 South Korea ....................... 2,058 2,182 2,045 1,990 68 3.4
Other OECD ....................... 395 655 626 680 –285 –41.9
NON-OECD
China .................................... 6.80 6.57 6.24 5.90 5.80 5.27 Total OECD ................. 26,764 26,232 27,405 25,046 1,718 6.9
FSU ........................................ 4.02 3.85 4.18 4.54 4.05 3.64
Non-OECD Europe................. 0.65 0.70 0.76 0.69 0.63 0.68 *Based on past data collection method.
Other Asia ............................. 8.27 8.31 8.04 8.32 7.83 7.70 Source: DOE International Petroleum Monthly
Other non-OECD.................... 13.23 13.02 12.95 12.88 12.78 12.37 Data available in Oil & Gas Journal Energy Database.
Total non-OECD ............. 32.97 32.45 32.17 32.33 31.09 29.66

TOTAL DEMAND ..................... 82.19 80.74 82.39 82.13 79.37 77.24

OECD* TOTAL GROSS IMPORTS FROM OPEC
SUPPLY
OECD Chg. vs.
US ......................................... 8.50 8.75 8.87 8.79 8.74 8.73 previous
Canada .................................. 3.13 3.10 3.19 3.23 3.17 3.00 Oct. Sept. Aug. Oct.* ——– year ——
Mexico .................................. 3.83 3.89 3.83 3.85 3.84 3.75 2004 2004 2004 2003 Volume %
North Sea .............................. 5.23 5.74 5.90 6.11 5.72 5.79 –———————— Million b/d ––——————–
Other OECD ........................... 1.50 1.50 1.52 1.51 1.58 1.56
Total OECD ..................... 22.19 22.98 23.31 23.49 23.05 22.83 Canada .............................. 327 450 387 502 –175 –34.9
US ...................................... 5,567 5,580 6,225 5,342 225 4.2
NON-OECD Mexico ............................... 46 34 48 54 –8 –14.8
FSU ........................................ 11.49 11.23 10.99 10.86 10.54 10.19 France ................................ 905 852 723 829 76 9.2
China .................................... 3.65 3.57 3.57 3.56 3.54 3.58 Germany ............................ 628 605 512 501 127 25.3
Other non-OECD.................... 12.48 12.34 12.22 12.13 11.76 11.59 Italy .................................... 1,254 1,348 1,280 1,246 8 0.6
Total non-OECD, Netherlands ....................... 425 545 614 571 –146 –25.6
non-OPEC ................... 27.63 27.14 26.78 26.55 25.84 25.36 Spain ................................. 668 750 726 678 –10 –1.5
Other importers ................ 1,215 1,288 1,356 1,366 –151 –11.1
OPEC ......................................... 33.60 32.21 32.22 31.65 30.32 30.06
United Kngdom .................. 0 254 181 261 –261 –100.0
TOTAL SUPPLY ....................... 83.41 82.33 82.31 81.69 79.21 78.25
Total OECD Europe .... 5,095 5,642 5,392 5,452 –357 -6.5
Stock change.......................... 1.22 1.59 –0.08 –0.44 –0.16 1.01
Japan ................................. 4,576 4,662 4,425 4,068 508 12.5
Source: DOE International Petroleum Monthly. South Korea ....................... 2,247 2,246 1,919 2,002 245 12.2
Data available in Oil & Gas Journal Energy Database.
Other OECD ....................... 175 636 639 620 –445 –71.8

Total OECD .................. 18,033 19,250 19,035 18,040 –7 —

*Organization for Economic Cooperation and Development.

Source: DOE International Petroleum Monthly.

US PETROLEUM IMPORTS FROM SOURCE COUNTRY Data available in Oil & Gas Journal Energy Database.

Nov. Oct.
Average
——YTD——
Chg. vs.
previous
——– year ——
OIL STOCKS IN OECD COUNTRIES*
2004 2004 2004 2003 Volume % Chg. vs.
–—————— 1,000 b/d ––————– previous
Oct. Sept. Aug. Oct.* ——– year ——
Algeria ................................. 465 299 437 389 48 12.3 2004 2004 2004 2003 Volume %
Kuwait ................................. 324 229 253 220 33 15.0 –———————— Million bbl ––——————–
Nigeria ................................. 963 1,066 1,127 859 268 31.2
Saudi Arabia ........................ 1,700 1,646 1,561 1,808 –247 –13.7 France ................................ 188 189 185 176 12 6.8
Venezuela ............................ 1,532 1,560 1,516 1,353 163 12.0 Germany ............................ 270 264 271 271 –1 –0.4
Other OPEC .......................... 673 767 744 527 217 41.2 Italy .................................... 131 139 137 139 –8 –5.8
Total OPEC .................... 5,657 5,567 5,638 5,156 482 9.3 United Kingdom ................. 96 99 93 98 –2 –2.0
Other OECD Europe ........... 625 617 627 600 25 4.2
Angola ................................. 402 197 317 381 –64 –16.8 Total OECD Europe .... 1,310 1,308 1,313 1,284 26 2.0
Canada ................................ 2,094 2,208 2,116 2,058 58 2.8
Mexico ................................. 1,654 1,760 1,645 1,607 38 2.4 Canada .............................. 197 190 178 177 20 11.3
Norway ................................ 245 223 245 280 –35 –12.5 US ...................................... 1,639 1,643 1,657 1,602 37 2.3
United Kingdom ................... 290 486 360 444 –84 –18.9 Japan ................................. 642 632 627 642 — —
Virgin Islands ....................... 296 352 322 288 34 11.8 South Korea ....................... 148 152 150 148 — —
Other non-OPEC ................... 2,581 2,531 2,254 2,072 182 8.8 Other OECD ....................... 105 99 99 99 6 6.1
Total non-OPEC ............ 7,562 7,757 7,259 7,130 129 1.8
Total OECD .................. 4,041 4,024 4,024 3,952 89 2.3
TOTAL IMPORTS .......... 13,219 13,324 12,897 12,286 611 5.0
*End of period.
Source: DOE Monthly Energy Review. Source: DOE International Petroleum Monthly Report.
Data available in Oil & Gas Journal Energy Database. Data available in Oil & Gas Journal Energy Database.

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C l a s s i f i e d A d v e r t i s i n g

Your marketplace for the oil and gas industry

DEADLINE for CLASSIFIED ADVERTISING is 10 A.M. Tuesday preceding date • UNDISPLAYED CLASSIFIED: $3.10 per word per issue. 10% discount for three or
of publication. Address advertising inquiries to CLASSIFIED SALES, 1-800- more CONSECUTIVE issues. $62.00 minimum charge per insertion. Charge for
331-4463 ext. 6301, 918-832-9301, fax 918-831-9776, blind box service is $47.00 No agency commission, no 2% cash discount.
email: [email protected]. Centered heading, $7.75 extra.
• COMPANY LOGO: Available with undisplayed ad for $69.00. Logo will be centered
• DISPLAY CLASSIFIED: $310 per column inch, one issue. 10% discount three or above copy with a maximum height of 3/8 inch.
more CONSECUTIVE issues. $310 minimum charge per insertion. No extra charge • NO SPECIAL POSITION AVAILABLE IN CLASSIFIED SECTION.
for blind box in care. Subject to agency commission. No 2% cash discount. • PAYMENT MUST ACCOMPANY ORDER FOR CLASSIFIED AD.

EMPLOYMENT EMPLOYMENT EQUIPMENT FOR SALE

Looking for a job? Looking for employees? Project Manager Three high-pressure hydrogen compressors. First
International career opportunities! stage 39.8 atm, second stage 89.3 atm, third stage
www.miscojobs.com or Atlanta-based Colonial Pipeline Company (CPC) 192 atm. Direct coupled to 6,000 hz 50 cycle
[email protected] www.colpipe.com operates the largest refined liquid motors complete with switch gear and intercoolers.
petroleum products pipeline in the world. Cur- Location: Antwerp, Belgium. Please call Natural
Denver, Colorado, Independent Oil Company has an rently, there is a career opportunity available for a Resource Group: (352) 795-7711 or Fax: (352)563-0573.
opening for a landperson with a minimum of 5 years Project Manager II based in Alpharetta, Georgia.
leasing experience. FAX resume to 303-850-7498.

Oil and Gas Professionals –

Department of State
The primary role of the Project Manager (PM-II) is
to perform the project management and adminis-
trative activities necessary to successfully complete
Read
The U.S. Department of State is seeking
assigned projects. The PM-II develops and imple-
ments improvements to CPC project management
processes, procedures, and guidelines to ensure
OGJ
qualified oil and gas professionals with
senior managerial and operational expertise
for temporary duty in Iraq. Candidates must
consistently high quality performance results.
Classifieds
be able to serve in the Iraq Reconstruction Candidates must thoroughly understand and be
Management Office (IRMO) with the U.S. experienced in the practical application of project
Embassy in Baghdad, Iraq, for a minimum of management methodologies and successfully led at 20,000 BPD CAT CRACKER
six months to one year. Deployment to Iraq least 4 large/complex projects. The ideal candidate FCCU NEW IN 1983
will occur within 4-6 weeks of approval for will have a Bachelors degree in an engineering
employment. Candidates must pass medical discipline from an accredited college or university.
screening, security background check, and Project Management Institute certification is highly [email protected]
conflict of interest/ethics screening for preferred. Six years experience in oil/gas pipeline
industry is a strong plus. Require travel is anticipated 2221 Mokawk Str. Bakersfield CA 93308
employment. Salary commensurate with Tel: 661-325-4000 Fax 661-323-6734
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should go to this website:
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Responsibilities include refinery project 2 MMSCFD, 1100PSI, PROCESS EQPT.;
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PennWell Classifieds FRACTIONATION: 1000 – 25,000 BPD Independent seeking Consultant to assist in
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Contact: Glenda Harp We offer engineered surplus equipment solutions. Drilling Equipment Assets including
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Bexar Energy Holdings, Inc. Commission or Retainer
Phone 210 342-7106
Fax: +1-918-831-9776 [email protected]
Fax 210 223-0018
Email:@[email protected] Email: [email protected] (713) 828-1006

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International Exploration
EDUCATION

Managing Risks and Strategic Decisions in

Economics, Risk, and
Petroleum Exploration & Production
March 30-April 1, 2005. Colorado School of
Mines. This course provides a practical, hands-on
Contracts Analysis
approach to modern techniques in risk management
and strategic decision making for all aspects of
petroleum exploration and production. Participants
are provided state-of-the-art problem solving
techniques for decisions involving prospect
evaluation, resource allocation, diversification and
risk-sharing, corporate planning, and strategy
development. Registration Fee: $1195/$1295 (US)
Contact: 303/273-3321, fax: 303/273-3314, email:
[email protected],
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SERVICES

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NEW!
This book is an anthology from Daniel Johnston’s column for the Petroleum
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Accounting, University of North Texas. It deals with international exploration
economics and petroleum fiscal system analysis and design and contains the
most up-to-date information and discussions in the industry on the subject.
While some chapters date back a number of years, the key chapters and con-
cepts have been dramatically updated with detailed examples. The book pro-
vides insight into international exploration economics and risk analysis, eco-
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• Value of reserves in the ground • Gas development options
• Summary and analysis of example fiscal systems • Detailed glossary • Index

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Key Code
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Abuja, Nigeria

EXPANDING
EXPAN DING FRONTIERS
Offshore West Africa (OWA) is now fully recognized as the premier
forum for presentation of critical technical issues surrounding the
exploration, development and production of Africa’s vast natural
resources. Over the past nine years, OWA has grown in stature and
has become a pivotal technical conference and exhibition for those
who need to understand the complexities of this vast region.
Very few new frontiers remain as enticing to oil and gas exploration
and development as what is now occurring in West Africa. Within
the next five years West Africa will see huge increases in capital
expenditures leading to positive economic development throughout
the continent.
As the event organizer, PennWell recognizes the importance of this
vital market and will provide a topical, informative conference and
exhibition to those interested in exploring Africa.
Come participate and exhibit your products and services as we
Expand Frontiers in an ever growing and exciting Africa oil and
gas industry.

Supporting Organizations
GEP – French Suppliers Council

PESA – Petroleum Equipment Suppliers Association

The Corporate Council on Africa

UKWAAG – United Kingdom West Africa Action Group

Hosted by: US - Africa Chamber of Commerce

Information about event sponsorship and exhibitor

packages are available today by contacting:
Event Director
Frances Leon
Flagship media sponsors: Phone: +44 1992 656 653
Fax: +44 1992 656 735
Email: [email protected]

Exhibit & Sponsorship Sales

Sue Neighbors
Phone: +1 713 963 6256
Fax: +1 713 963 6212
E-mail: [email protected]

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A d v e r t i s i n g S a l e s / A d v e r t i s e r s I n d e x
Houston
1700 West Loop South, Suite 1000, Houston, TX 77027;
Regional Sales Manager; Bill Wageneck, (713) 963-6244
E-mail: [email protected]. Regional Sales Manager
Marlene Breedlove, (713) 963-6293, Fax (713) 963-6228
E-mail: [email protected]
C P
Southwest / Western States C5 Process Validation For Petroleum Place Energy Advisors ........29
1700 West Loop South, Suite 1000, Houston, TX 77027; Biological Production ........................27 www.p2ea.com
P.O. Box 1941 Houston, TX 77251; Regional Sales Manager; www.c5-online.com/china
PennWell Corporation
Marlene Breedlove,Tel: (713) 963-6293; Fax: (713) 963-6228;
Email [email protected]
Classifieds ........................................64-65 Book ..............................................42, 60
www.pennwellbooks.com
Northeast/New England Conferences & Exhibitions
1700 West Loop South, Suite 1000, Houston, TX 77027;
(713) 963-6244, Fax: (713) 963-6228. Regional Sales
Manager Bill Wageneck, E-mail: [email protected].
D Independent Operators Forum....16
Offshore West Africa ....................66
Doris Engineering..................................23
Mid-Atlantic/Gulf States www.doris-engineering.com Reprints ..............................................56
1700 West Loop South, Suite 1000, Houston, TX 77027;
(713) 963-6244, Fax: (713) 963-6228. Regional Sales
Manager Bill Wageneck, E-mail: [email protected].

Midwest/Dallas/Tulsa
F R
1700 West Loop South, Suite 1000, Houston, TX 77027; Federal Government of Nigeria............15
(713) 963-6244, Fax: (713) 963-6228. Regional Sales Rough Creek Lodge ..............................18
Manager Bill Wageneck, E-mail: [email protected]. www.roughcreek.com
London
PennWell House, Horseshoe Hill, Upshire, Essex EN9 3SR,
H
United Kingdom; Telephone: 44 0 1992 656 657; Fax: 44 0 Halliburton Energy Services ................11
1992 656 735. Chris Angel, E-mail: [email protected];

Scandinavia/The Netherlands/Middle East/Africa

www.halliburton.com
Hughes Christensen ................Back Cover
S
David Betham-Rogers, Villa Borghese II, 13B Avenue Guillaume, Siemens AG I&S GC MC
www.bakerhughes.com
L-1651 Luxembourg, Luxembourg; Telephone: (352) 2645 8580; ..................................Inside Front Cover
David Betham-Rogers, E-mail [email protected] www.siemens.com/oil-gas

Paris
Daniel Bernard, 8 allee des Herons, 78400 Chatou, France;
I Society of Petroleum Engineers..............2
www.otcnet.org/2005
Telephone: 33 (0)1 3071 1224; Fax: 33 (0)1 3071 1119; E-mail: Industrial Rubber, Inc.
[email protected], France, Belgium, Spain, Portugal, Oil Tool Division ................................12
Southern Switzerland, Monaco. www.iri-oiltool.com
Essen
Verlagsburo Sicking, Emmastrasse 44, 45130, Essen,
Infonex Inc.............................................27
www.infonex.ca
T
Germany. Telephone: 49 0201 77 98 61; Fax: 49 0201 781 741; Thompson & Knight LLP ......................21
E-mail: [email protected]. Wilhelm F. Sicking, Intergate AG ..........................................31
Germany, Austria, Denmark, Northern Switzerland,
Eastern Europe, Russia, Former Soviet Union.

Tokyo
Japan Advertising Communications, Inc., Three Star
L W
Building, 3-10-3 Kanda Jimbocho, Chiyoda-ku, Tokyo 101, Landmark Graphics..................................4 Weatherford International Ltd. ..............7
Japan. Telephone: 33 261 4591; Fax: 33 261 6126; E-mail: www.lgc.com www.weatherford.com
[email protected]. Shigeru Kobayashi.

Brazil
Grupo Expetro/Smartpetro,
Att.: Jean-Paul Prates and Bernardo Grunewald, Directors,
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From the Subscribers Only area of www.ogjonline.com

Russia’s recent M a r k e t J o u r n a l by Sam Fletcher, Senior Writer

oil production
defies forecasts US rig count near 19-year high and climbing
Baker Hughes Inc. reported 1,295 rotary rigs drilling in the US during the week
Expectations about oil supply from Rus-
ended Feb. 18, the highest weekly rig count since late February 1986, when the count
sia may need to be adjusted. Downward.
The country’s production, surging since was at 1,308. There are major differences between the two periods, however. In 1986,
1998, has sputtered in recent months. In a US drilling activity peaked during the first week at 1,915 rotary rigs, then plunged to
world with rising demand and a shrinking 663 that summer as Saudi Arabia opened its taps and pushed down crude prices in a
number of places able to increase produc- battle for market share. US drilling rebounded slightly to 988 at the end of 1986, but
tion, that’s something to worry about. crude prices and rig counts remained depressed for years afterward.
The International Energy Agency This year, the US rig count opened at 1,242 rotary rigs, has trended slowly up-
sketches the picture in its February Monthly wards over the first 2 months, and generally is expected to keep climbing. Needless
Oil Market Report. Year-on-year monthly to say, both crude and natural gas prices are nominally much higher today than in
1986 and also are likely to remain so.
T h e E d i t o r ’ s
Rig day rates improve
P e r s p e c t i v e The number of drilling permits issued by the 30 states monitored by Lehman
by Bob Tippee, Editor Bros. Inc., New York, increased by 3.2% during January, adjusted for comparable
numbers of filing days. The biggest increases were in Wyoming, (up an adjusted
production growth, it says, peaked in the 26%), Texas (up 11%), and Oklahoma, (up 14%). “The modest increase in January
summer of 2003 at 12%, nearly 1 million suggests an improving US rig count in the coming months,” said Lehman Bros.
b/d. analysts. Drilling contractors are cashing in on currently increased activity through
Through early 2004 growth remained at higher day rates for their rigs. Transocean Inc., Houston, recently announced that its
10% but fell to 6% by the end of the year. 10,000-ft capacity Discoverer Spirit drillship in the Gulf of Mexico was awarded an
Extrapolation of the slowdown indicates
18-month contract for an all-time global high rate of $270,000/day, up from the previ-
the production increase for all of 2005 will
ous record of $240,000/day. “The company sees day rates for ultradeepwater rigs
be less than 350,000 b/d.
In January, IEA had projected the gain at approaching $300,000,” said Lehman Bros. analysts.
430,000 b/d. “In the North Sea midwater market, day rates could rise to 1997-98 peak levels of
The slower growth would amount to $140,000-150,000 by the end of 2005, up from the $110,000 [level],” the analysts said.
3.8%—bringing production for all of 2005 to “Today, most international jack up [rig] markets are near full utilization, and there is
an average 9.58 million b/d—following an incremental demand for units in the Middle East, Southeast Asia, and West Africa.
8.7% increase last year. Accordingly, we expect additional day rate gains across the regions.”
How important is this to global supply?
IEA notes that Russia’s share of worldwide Oil price, demand both rise
production growth amounted to 65% in Despite a nearly 60% jump in crude prices during the past 2 years, US demand
2001, 50% in 2002, 95% in 2003, and 75% in increased by 1.8% in 2004, including a sharp acceleration of more than 3% from year-
2004. Very important, in other words. ago levels in the second half of last year, when prices were hovering near $50/bbl,
IEA says 2005 might be a “year of con- said analysts in the Houston office of Raymond James & Associates.
solidation for the Russian upstream, born Moreover, they noted, “Unlike the 1970s, when higher oil prices drove sharp
of a still-uncertain regulatory and fiscal increases in core [US] inflation, the recent rise in oil prices has occurred with a
environment.” decrease in core inflation.” They concluded, “It appears that the historical oil demand
Following increases in production destruction relationship has changed.” Scott Brown, senior economist at Raymond
taxes and a series of moves tightening the James, offered a list of possible explanations:
Kremlin’s grip on Russia’s oil industry, and • Real per capita income and automobile [performance] efficiency increased at
with movement slow on a petroleum law, higher rates than oil prices, so that a smaller percentage of a person’s income is now
investors are chilled. spent on energy.
IEA says the government acknowledges • In 1973-74, the Middle Eastern oil embargo caused prices roughly to triple to
the slowdown in a draft economic pro- $10/bbl from $3/bbl. The Iranian revolution of 1979 also almost tripled oil prices to
gram for 2005-08 that projects production $35/bbl from $12/bbl. “By comparison, the recent move from $35 to $45[/bbl] is an
increases of 2.1-5% and cites the need for
increase of only 29%. Even when measured from the September 2003 trough of
exploration in new areas.
$27[/bbl], prices have increased by about 65%,” analysts said.
“Stronger production growth could
return when the shape of Russia’s upstream • As the US economy has shifted from manufacturing to services, energy inten-
investment [and] operating environment sity has declined so that energy is a smaller part of the overall US economy.
becomes clearer,” IEA says. • The labor market, specifically unionized labor, has less impact on inflation, with
Russia’s annual average production has fewer labor contracts geared to changes in the consumer price index [CPI].
been as high as 12.5 million b/d (in 1988) • Increased worker productivity through application of new technology over the
and as low in recent years as 6-6.1 million last 5 years has offset higher material costs.
b/d (in 1996-98). • Corporate margins are being squeezed so that it’s harder for companies to pass
The geologic potential for Russian out- along higher energy costs to consumers.
put to push well past current levels is not • The “wealth-effect” from higher real-estate prices mutes the impact of higher
in doubt. energy prices on consumer spending.
But Russian production in 2005 is likely • The “Wal-Mart effect” of “big box” stores has “whittled down middleman costs
to be a reminder that it’s never safe to and outsourced many of their products from lower-wage countries.”
expect future conditions in the oil market to Brown asked, “Are we really measuring the CPI correctly? Even though it is prob-
represent extensions of present trends. ably a very small part of the oil price-to-inflation decoupling, one can argue that
today’s CPI is not capturing the full price increase that the consumer is experiencing.
(Online Feb. 18, 2005; author’s e-mail: Today’s CPI is probably not reflecting a meaningful increase in rent, healthcare, or
[email protected])
technology costs.”

(Online Feb. 21, 2005; author’s e-mail: [email protected])

68 Oil & Gas Journal / Feb. 28, 2005

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