GENERAL INTEREST Quick Takes
ONEOK to acquire Magellan Midstream Partners
ONEOK Inc. has agreed to acquire Magellan Midstream Partners LP in a cash-and-stock transaction valued at about $18.8 billion including $5 billion in assumed net debt.
Through the deal, Magellan would be merged into a newly created, 100% wholly owned subsidiary of ONEOK, adding a primarily fee-based refined products and crude oil transportation business to ONEOK, the companies said in a joint statement May 14.
Magellan has a 9,800-mile refined products pipeline system with 54 connected terminals and two marine storage terminals (one through a joint venture), according to the company’s website. The company also owns some 2,200 miles of crude oil pipelines, a condensate splitter, and storage infrastructure with an aggregate storage capacity of about 39 million bbl, of which 29 million are used for contract storage. About 1,000 miles of these pipelines, the condensate splitter, and 31 million bbl of the storage capacity (including 25 million bbl used for contract storage) are wholly owned, with the remainder owned through joint ventures.
The combined company will own more than 25,000 miles of liquids-oriented pipelines, with significant assets and operational expertise at the Gulf Coast and Mid-Continent market hubs, ONEOK said. Base forecasted synergies are expected to total at least $200 million annually.
The transaction is expected to close in this year’s third quarter, subject to customary closing conditions, after which Norton will continue to serve as chief executive officer. ONEOK has secured $5.25 billion in fully committed bridge financing for the proposed cash consideration.
Australia increases taxes on offshore gas industry
The Australian government made changes to the Petroleum Resource Rent Tax (PRRT) to increase the tax paid by the offshore LNG industry.
The move, announced by Treasurer Jim Chalmers in a pre-budget release, is expected to increase government revenue by $2.4 billion (Aus.) over the next 4 years.
In making the changes, the government will adopt eight of 11 recommendations from a Treasury Gas Transfer Pricing Review initiated by the former Coalition Government and revived under the current Labor Government, as well as eight recommendations in an earlier (Callaghan) review.
Changes include a move to limit the proportion of PRRT assessable income on LNG projects that can be offset by deductions to 90% from July 1, 2023.
The current legislation enables companies to claim 100% of reimbursable costs before any PRRT becomes liable.
In the past, PRRT, at a rate of 40%, came due only when offshore projects returned a positive cash flow. In practice, that means most LNG projects were not expected to pay any significant amount of PRRT until the 2030s.
Chalmers said that the change will bring forward PRRT revenue from LNG projects and ensure a greater return to taxpayers from the offshore LNG industry, while limiting impacts on investment incentives and risks to future supply.
The changes will not affect the Woodside Energy-operated North West Shelf project which operates under a separate royalty regime.
Both the Callaghan Review and the GTP Review noted that aspects of the PRRT are better suited to oil projects than LNG projects. The deductions cap will help address the issue and account for the particular circumstances and economics of LNG projects, the Treasurer said.
Chalmers said the government will consult on final design and implementation details for the deductions cap and on the draft GTP rules later this year. Consultation on other policy changes (recommendations from the Callaghan Review and anti‑avoidance rules) will occur in early 2024.
Vital expands Permian leasehold with Delaware basin deal
Vital Energy Inc., Tulsa, Okla., in partnership with Northern Oil and Gas Inc. (NOG), has agreed to acquire assets of Forge Energy II Delaware LLC, an EnCap portfolio company, to expand its Permian basin focus and establish a core operating position in the Delaware basin, the company said in a release May 12.
The two companies jointly agreed to acquire the assets in a $540 million all-cash transaction in which Vital Energy will acquire 70% of the assets for $378 million and serve as operator, while NOG will hold 30% for $162 million.
With the deal, Vital Energy adds nearly 42,000 gross acres (24,000 net) and current net production of about 9,500 boe/d (65% oil), expanding its Permian basin leasehold to about 198,000 net acres and establishing core operating positions in Pecos, Reeves, and Ward counties in Texas.
Vital Energy expects to operate one rig on the acquired properties, down from two rigs operated by Forge Energy, keeping production relatively flat, while increasing Vital Energy’s total Permian basin rig count to three.
Vital Energy said the deal adds about 100 gross high-value oil locations in the 2nd and 3rd Bone Spring and Wolfcamp A with potential upside in additional stacked formations.
The deal is expected to close in late second-quarter 2023, subject to customary closing conditions.
Santos’ PNG LNG sell-down period with Kumul extended
Kumul Petroleum Holdings Ltd.’s binding conditional offer period to acquire 5% interest in the PNG LNG project from Santos Ltd. has been further extended to remain open until Aug. 31, 2023.
Santos has agreed to deal exclusively with Kumul, Papua New Guinea’s national petroleum entity, during this time.
The extension follows notification from Kumul on Dec. 23, 2022, extending the offer period Apr. 30, 2023.
The deal, originally announced in September 2022, put the 5% asset value at $1.4 billion and includes a proportionate share of PNG LNG project finance debt of about $300 million.
Kumul has agreed to work closely with Santos during this second extension to assist in finalizing acquisition financing with third parties.
The transaction has full approval of the PNG LNG joint venture partners as well as the Papua New Guinea government.
Santos remains committed to selling the 5% project stake to support the PNG government in achieving the nation’s equity objectives, the company said.
PNG Prime Minister James Marape said that given the volatility in the financial markets and the high interest rate environment, he supports Kumul’s request for an extension to complete the transaction.
Currently, ExxonMobil, as PNG LNG operator, holds 33.2% interest and Santos holds 42.5% interest. Other partners are Kumul (16.8%), JX Nippon Oil & Gas Exploration (4.7%), and Mineral Resources Development Co. Ltd.—representing PNG landholders— (2.8%.).
Exploration & Development Quick Takes
Equinor discovers hydrocarbons south of Kristin
Equinor Energy AS will assess a new Norwegian Sea hydrocarbon discovery alongside nearby discoveries and prospects to determine follow-up activities. Preliminary estimates place the size of the discovery at 0.2-1.1 million std cu m of recoverable oil equivalent, the Norwegian Petroleum Directorate said in a release May 12.
Exploration well 6406/5-2 S, the fourth in production license (PL) 255 B, was drilled by the Deepsea Stavanger semisubmersible drilling rig about 25 km south of Kristin field in 304 m of water to a vertical depth of 4,582 m. It was terminated in the Ror formation from the Early Jurassic. The primary exploration target for the well was to prove petroleum in Middle and Lower Jurassic reservoir rocks (Garn, Ile and Tofte formations).
The well encountered a gas-condensate column of about 24 m in the Garn formation, 46 m of which was a sandstone reservoir with poor to moderate reservoir properties. The Garn formation had a total thickness of 60 m. The well also encountered 102 m and 140 m of sandstone reservoirs in the Ile and Tofte formations, respectively, with moderate to good reservoir quality. The reservoir was water-filled.
The well was not formation-tested, but data acquisition and sampling have been carried out. It has been permanently plugged.
The rig is now drilling a pilot hole in Equinor-operated production license 1058.
Equinor is operator at PL 255B with 35% interest. Partners are Petroro AS (30%) and TotalEnergies EP Norge AS (35%).
TotalEnergies signs HOA ahead of Angola development FID
TotalEnergies EP Angola Sonangol Pesquisa e Produção SA, and Agência Nacional de Petróleo, Gás e Biocombustíveis (ANGP) signed a heads of agreement that could advance progress toward a final investment decision this year on future development offshore Angola.
The prospective development, the first in Kwanza basin, would allow production from the Cameia and Golfinho discoveries on Blocks 20 and 21, about 150 km southwest of Luanda, comprised of an FPSO connected to a subsea network.
The design includes electrical generation from a combined cycle turbine and a zero-flaring concept.
TotalEnergies EP Angola is operator with 80% interest in both blocks. Sonangol holds the remaining 20%. FID is subject to partner and authority approval.
IPR discovers oil in North Beni Suef
IPR Energy Group discovered oil in its 5,060-sq km North Beni Suef (NBS) exploration concession in Egypt.
The first exploration well, NBS-1X, was drilled to a depth of 8,185 ft MD after a successful drilling campaign with a 1,500 hp rig. The well encountered multiple pay zones in the Abu Roash G formation with test rates as high as 1,120 bo/d pre-frac and 28.5°API oil, the company said.
The well stabilized at 470 bo/d on ½-in. choke, with less than 0.5% basic sediment and water. The well is under close monitoring and will continue to be evaluated for early production facility (EPF) sizing and fast-tracking for supply to the local market.
IPR is also conducting a 3D seismic program in NBS which is expected to add to an inventory of prospects to deliver a second exploration well in third-quarter 2023 through enhanced subsurface imaging.
Drilling & Production Quick Takes
Perenco Brazil advances cluster development with FSO hook-up
Perenco Brazil completed hook-up of the floating storage and offloading (FSO) vessel, Pargo, on Pargo Cluster in the Campos basin, offshore Brazil, advancing the ongoing $400-million Pargo Cluster development plan.
The company will now submit final documents to Brazilian regulators with a view to being granted an operations license for the FSO, Perenco Brazil said in a release May 16.
Hook-up included the connection of nine mooring lines and of the new production line from the Pargo platform, all connected to the new turret which was integrated in Dubai as part of the FSO conversion.
The vessel arrived in Brazil in March after its full FSO conversion, as well as the concurrent installation of the FSO mooring system which was completed at end-2022. FSO Pargo is a double-hull vessel built in 2004 with a storage capacity of 750,000 bbl.
Perenco Brazil holds 100% interest in the Pargo Cluster concession, which comprises Pargo, Carapeba, and Vermelho fields in the shallow waters offshore Rio de Janeiro. The concession area holds eight fixed platforms in water depths up to 100 m.
Production reached 13,000 b/d of oil this year, up from 2,800 bbl when Perenco took over operations in October 2019. The cluster development plan was formally approved by Brazilian authorities in early 2021, along with extension of Perenco’s rights on the concessions until 2040.
W&T Offshore production down 16%
W&T Offshore Inc., Houston, had first-quarter 2023 production of 32,500 boe/d (2.9 MMboe), within guidance but down 16% from the 38,600 boe/d produced in fourth-quarter 2022, and a decrease of 14% from the 37,800 boe/d produced in the year-ago period.
First quarter production for the Gulf of Mexico operator was comprised of 15,000 b/d of oil (46%), 3,300 bbl of NGLs (10%), and 85.3 MMcfd of natural gas (44%).
The production decrease was driven by unplanned downtime at non-operated fields and extended planned downtime associated with maintenance at the operator’s Mobile Bay onshore treatment plant as well as pipeline maintenance, which shut in Mobile Bay field production for 35 days, 10 days longer than estimated in previous guidance, the company said in first-quarter earnings May 9.
Shut-in production has been mostly restored and total company production is currently averaging about 38,100 boe/d, the company said.
In other operations news, the company said the front-end engineering and design and permitting processes are still under way on the Holy Grail well at Garden Banks 783 in Magnolia field.
Coterra to drop certain Marcellus activity, increases oil production guidance
Coterra Energy Inc., Houston, confirmed its plan to drop two rigs and one completion crew from its Marcellus activity for the remainder of the year, raising its 2023 oil production guidance to 87,000-93,000 b/d from 86,000-92,000 b/d in response to low gas prices.
Currently, the operator is running six rigs and two completion crews in the Permian basin, two rigs in the Anadarko basin, and three rigs and two completion crew in the Marcellus (pre-drop), the company said as part of its first-quarter 2023 earnings report May 4.
Production volumes for this year’s second quarter are expected to average 620,000-650,000 boe/d, with oil estimated at 88,500-91,500 b/d and natural gas volumes estimated at 2,750-2,850 MMcfd.
Total equivalent production of 635,000 boe/d exceeded the high-end of guidance, driven by strong well performance and improved cycle times, Coterra said.
Oil production averaged 92,200 b/d, exceeding the high-end of guidance. Natural gas production averaged 2,757 MMcfd, also exceeding the high-end of guidance.
PROCESSING Quick Takes
Citgo boosts Louisiana refinery capacity
Citgo Petroleum Corp., Houston, has completed a turnaround at its Lake Charles, La., refinery, increasing its nameplate crude oil processing capacity by 38,000 b/d to 463,000 b/d, and bringing the total nameplate capacity of the Citgo refining system to 807,000 b/d.
The company’s Lemont refinery achieved record crude processing of 187,000 b/d in March, representing nearly 106% utilization of the total nameplate capacity.
The updates were part of Citgo’s first-quarter 2023 financial and operational report released May 10.
During the quarter, Citgo invested $127 million in turnaround and catalysts and incurred an additional $53 million of capital expenditures.
Favorable refining margins and product yields combined with strong asset reliability contributed to a first-quarter 2023 net income of $937 million, compared with net income of $806 million for fourth-quarter 2022.
Crude oil processing in the first quarter was 772,000 b/d, with crude capacity utilization of 96%, compared with 797,000 b/d and 104% crude capacity utilization in fourth-quarter 2022.
Total throughput for the quarter was 814,000 b/d, of which crude runs were 772,000 b/d, with a total crude utilization rate of 96%. This compares with total throughput of 874,000 b/d, of which crude runs were 797,000 b/d with crude utilization rate of 104% in fourth-quarter 2022.
Chinese operator lets contract for new SAF plant
Sichuan Jinshang Environmental Protection Technology Co. Ltd. (JSRE) has let a contract to Honeywell UOP LLC to license process technology that will enable production of sustainable aviation fuel (SAF) at a grassroots plant to built at Suining, Jintang County, Sichuan, China.
Alongside licensing of its UOP-Eni SPA codeveloped proprietary Ecofining process, Honeywell UOP also will provide catalysts and proprietary equipment for the newly proposed plant that will produce nearly 300,000 tonnes/year (tpy)—about 6,000 b/d—of SAF from a feedstock of renewable resources such as used cooking oils and animal fats, the service provider said in a May release.
JSRE’s selection of Honeywell UOP’s Ecofining technology will allow the company to achieve sustainable development in multiple fields, including promoting further development of SAF made from waste oils in China, particularly in the regions of Sichuan, Yunnan, and Guizhou, said Ye Bin, JSRE’s chairman.
Honeywell UOP’s formal announcement of the contract follows original award of the contract on Apr. 12, according to separate releases from Jintang County Administrative Approval Bureau and Jintang County’s government office.
The government of Jintang County confirmed in its April releases that JSRE signed an investment agreement with SK Innovation Co. Ltd. subsidiary SK Energy Co. Ltd. for the proposed SAF project.
Details regarding the scope or terms of the investment agreement have not been revealed, nor has a timeline for startup of the proposed SAF plant.
Formed in 2017, JSRE currently produces 60,000 tpy of biodiesel and 100,000 tpy of industrial-grade blended oil from production lines at its operations in Chendgdu-Aba Industrial Concentrated Development Zone (CAICDZ) in Jintang County in Sichuan’s provincial capital of Chengdu, according to the operator’s website.
Established in 2005, JSRE’s now wholly owned subsidiary Sichuan Jindeyi Oil Co. Ltd. operates a waste oil collection and transportation system that holds an 80% share of Chengdu’s kitchen waste oil collection market.
As of late-August 2022, JSRE was anticipating its submission of an environmental impact report for a proposed 120-million yuan second phase of the operator’s Comprehensive Utilization of Waste Oil Recycling Project (CUWORP), which would enable an additional 50,000 tpy of biodiesel and 30,000 tpy of biomass fuel oil at its CAICDZ complex, JSRE said in a release in August 2022.
Alongside involving adjustments to the existing complex’s layout as well as its pollution prevention and control measures, the Phase 2 CUWORP also would add 15,000 tpy of fresh pretreatment process capacity for animal and vegetable waste oils, while reducing the complex’s existing pretreatment process capacity for those same waste oils to 83,000 tpy from its original 100,000-tpy capacity, according to a May 2022 release.
To date, JSRE has yet to update the status of the proposed Phase 2 CUWORP.
TRANSPORTATION Quick Takes
AltaGas, Vopak form British Columbia LPG export JV
AltaGas Ltd. and Royal Vopak NV have formed a 50-50 joint venture to further evaluate development of the Ridley Island Energy Export Facility (REEF), a large-scale LPG, methanol, and bulk liquids terminal with marine infrastructure on Ridley Island, BC. REEF already has permits to construct storage tanks, a new dedicated jetty, and rail and other ancillary infrastructure.
The terminal would be developed on a 190-acre site administered by the Prince Rupert Port Authority (for which the joint venture has executed a long-term lease) that sits adjacent to AltaGas and Vopak’s existing 1.2-million tonne/year (tpy) Ridley Island Propane Export Terminal (RIPET), in operation since April 2019.
AltaGas will be responsible for the terminal’s construction and operation. The company in 2020 received Canadian Energy Regulator approval to export an additional 1.2 million tpy from the Ridley Island site.
REEF is currently working through front-end engineering and design, expected to be completed by late 2023 and followed by a final investment decision (FID). The partners are also solidifying long-term rail agreements in advance of FID.
Should REEF reach positive FID, the terminal will be developed and brought online in phases. AltaGas has executed a long-term commercial agreement with the joint venture for 100% of the capacity for the first phase of LPG volumes. Future phases will be developed as additional long-term commercial agreements and critical milestones are reached.
Port of Prince Rupert provides REEF year-round ice-free operations and has the deepest natural harbor in North America, according to the joint venture, allowing it to accommodate the world’s largest vessels. With only 10 shipping days to markets in Northeast Asia, REEF would hold a roughly 60% time savings over the US Gulf Coast and about 45% over the Arabian Gulf. AltaGas noted that it already provides 12% of Japan’s propane and 12% of South Korea’s LPG imports.
Venture Global to supply JERA with 1 million tpy of LNG
Venture Global LNG Inc. has executed a long-term agreement with JERA Co. Inc. for sale of 1 million tonnes/year (tpy) of LNG from Venture Global’s 20-million tpy CP2 LNG plant for 20 years.
Federal permitting of CP2, Venture Global’s third project, is progressing and construction is slated to begin this year to meet a second-quarter 2026 in-service date. To be sited in Cameron Parish, La., it will employ the same modular construction used at Venture Global’s 10-million tpy Calcasieu Pass LNG plant.
The company says CP2 LNG will be able to produce 28 million tpy under optimal conditions, with the gas delivered on CP Express natural gas pipeline. Over a third of the project’s nameplate capacity is sold and discussions are ongoing for the remainder, the company said.
The deal follows JERA Global Markets’ purchase of the inaugural commissioning cargo of LNG exported from Venture Global’s first project, Calcasieu Pass.
Comet Ridge, Jemena sign MoU for Mahalo North gas pipeline
Comet Ridge, Brisbane, has signed a memorandum of understanding (MoU) and pre-front-end engineering and design (FEED) agreement with Jemena to evaluate a new gas pipeline connection from Comet Ridge’s Mahalo North development to the Rolleston compressor station for entry into Queensland’s domestic gas network.
The MoU calls for Jemena to immediately undertake pre-FEED studies for the Jemena-owned and operated 73 km gas line as a precursor to a full FEED study that could lead to pipeline construction.
The study will focus on Mahalo North but can also accommodate all future production from Comet Ridge’s 100%-owned projects in the Bowen basin region north of Rolleston, the company said.
In November 2022, an independent certification of Mahalo North placed 2P gas reserves at 43 petajoules and 3P reserves at 110 petajoules. This followed a pilot production test that achieved a gas flow rate of 1.75 MMcfd.