BP Delivers First Gas Shipment to Israeli Offshore Buoy

JERUSALEM--BP PLC (BP.LN) began delivering liquefied natural gas to Israel via an offshore buoy Thursday to help meet Israel's energy needs until it begins production of local gas from an offshore field later this year, government officials said.

The buoy was built off the Israeli coast by government-owned Israel Natural Gas Lines Co. at a cost of 500 million shekels ($134 million).

The gas is meant to satisfy the needs of the state-owned Israel Electric Co. until at least April, when Israel's offshore Tamar reserve will begin supplying gas.

"This is an important step for guaranteeing Israel's energy independence," Uzi Landau, minister of energy and water resources, said at a ceremony Thursday as the first ship filled the buoy with gas.

The Israeli gas shortage follows the cancellation by East Mediterranean Gas Co. of its supply deal with Israel last year in the wake of political changes in Egypt and numerous attacks sabotaging its pipeline in the Sinai Peninsula.

Since 2008, Egypt had supplied Israel with about 40% of its energy needs, or about 1.7 million cubic meters of gas a year. Israel relied on the local offshore Yam Tethys reserve for the remaining 60%. But after the cancellation of the Egyptian deal, and the depleting of the Yam Tethys reserve, the electric company turned to more expensive sources of fuel, such as diesel, that pushed up electricity prices and forced Israel Electric to depend on government guarantees to issue more bonds.

The electric company hasn't disclosed how much it is paying BP for the gas, or how much gas it planned to buy.

"But the cost of the buoy is much higher than the gas," said Elad Krauss, energy sector analyst at Harel Finance Ltd. in Tel Aviv. "There is no savings by buying gas from the buoy over diesel for the next few months."

But Mr. Krauss said that although the buoy was a large investment, and will not be used on a regular basis after the local Tamar field begins to produce gas, it does offer stability and security to Israel's energy supply, something that has been lacking.

In the case that something goes wrong with Tamar, the buoy will allow foreign companies to supply gas to Israel, Mr. Krauss said. Currently, Israel only has one gas pipeline, the closed one from Egypt, which is unlikely to reopen in the near future.

Israel's offshore Tamar field contains 9 trillion cubic feet of gas and is scheduled to begin production later this year. Another larger offshore gas field, Leviathan, that contains 16 trillion cubic feet of gas is slated to begin production later this decade. These two fields will eventually meet all of Israel's gas needs and turn the country into a gas-exporter, although the government has yet to specify how much gas it will allow for export.

Israel Natural Gas Lines contracted Italy's Micoperi Marine Contractors to build the bouy, which can accept up to 3 million cubic meters of gas a year.

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The Philippines Challenges China's Maritime Claims at UN Tribunal

The Philippines will challenge China's claim to most of the South China Sea/West Philippine Sea at a United Nations tribunal, its Department of Foreign Affairs (DFA) disclosed in a statement Tuesday.

The row between Manila and Beijing escalated in April last year, when government vessels from both sides faced off for several weeks at the Scarborough Shoal. The area around the Scarborough Shoal is widely believed to contain massive gas reserves, and has consequently drawn strong interest from both the Philippines and China.

"This afternoon, the Philippines has taken the step of bringing China before an arbitral tribunal under the 1982 United Nations Convention on the Law of the Sea (UNCLOS) in order to achieve a peaceful and durable solution over the West Philippine Sea," the DFA said.

"The Philippines has exhausted almost all political and diplomatic avenues for a peaceful negotiated settlement of its maritime dispute with China. We hope that the arbitral proceedings [will] bring this dispute to a durable solution," the DFA added.

Manila told Beijing's ambassador Tuesday about its decision to take China to arbitration under UNCLOS.

It is however clear that China is unwilling to participate in the process. The country, through the state-controlled Xinhuanet, emphasized that it wants to continue on bilateral negotiations.

"China has stressed bilateral talks with the Philippines to settle the island dispute. The Chinese Government has always stood for a negotiated settlement of international disputes through peaceful means. In this spirit, China has solved territorial disputes and demarcated borders with some neighboring countries through consultations and negotiations in an equitable, reasonable and amicable manner," Xinhuanet reported Wednesday.

UN leader Ban Ki-moon told reporters Wednesday that the two countries should seek to resolve their issues through dialogue in a peaceful and amicable way.

"The UN is ready to provide technical and professional assistance, but primarily all these issues should be resolved by the parties concerned," Ban said, careful to avoid backing any country involved. 

Quintella has reported on the upstream and downstream oil and petrochemicals markets from 2004. Email Quintella at quintella.koh@rigzone.com.

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New World Progressing in Denmark and Belize

Denmark and Belize-focused junior New World Oil and Gas reported Tuesday that it had made progress at both its Danica Resources Project in southern Denmark and its Blue Creek operation in Belize.

New World said that it had received a positive update to the Competent Person's Report produced by RPS Energy for its Danica Resources Project in the western Baltic region of the South Permian Basin in southern Denmark. Four new leads have been identified and New World now plans to acquire additional 2D seismic data along with 3D seismic data on Falster and Lolland islands over the Zechstein Zn-2, Zn-3 and Zn-4 leads, which were targeted by several of the latest 2D lines.

The firm said that seismic data confirms the western bounding fault for the Als prospect and volumetric estimates remain as detailed a previous document issued last July. At Zechstein, there are prospective resources of between 40 and 192 million barrels of oil (on a P90 to P10 basis), while at Rotliegendes prospective resources are estimated at between 575 and 3,380 billion cubic feet of gas.

New World added that both intervals on the Als prospect can be targeted from an onshore location and that they are "drill ready". In all, a total of 28 leads and one prospect have now been identified on New World's Danish license.

"This first phase of seismic has confirmed the original highly attractive volumetric estimates and associated indicative economics for the drill ready Als prospect. At the same time, we have acquired high quality data for this highly prospective Baltic Licence," New World CEO William Kelleher said in a company statement.

"We will continue to de-risk the multiple leads and prospects identified, with an additional 38.5-kilometer seismic survey planned for early February 2013 on Falster and Lolland Islands. This next phase will specifically target the Zechstein leads identified from the first phase of seismic as well as improving the probability of success in the Triassic."

Meanwhile, in a separate statement, New World said its Blue Creek No.2A side track well, onshore Belize, had drilled to a measured depth of 11,490 feet, some 400 feet short of the planned total depth for the well. The company is taking longer than originally anticipated here due to a halting in drilling operations whenever sections of interest in the targeted Hillbank and Y3 formations have been encountered so that core samples can be taken.

A former engineer, Jon is an award-winning editor who has covered the technology, engineering and energy sectors since the mid-1990s. Email Jon at jmainwaring@rigzone.com.

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O&G Firms Evacuate Workers, Shut In Fields for Cyclone Peta's Passing

Oil and gas companies operating offshore northwest of Western Australia have started shut in operations and personnel evacuation programs, after they received warnings to expect winds of up to 62 miles an hour in the wake of a tropical low which has strengthened into Cyclone Peta.

People in the area are being warned to expect thunderstorms and heavy rainfall, and a flood warning has been issued for Pilbara.

A spokesperson representing Apache Corp. confirmed with Rigzone Wednesday that the Stag and Van Gogh fields are shut in, due to the expected path of Cyclone Peta.

"Preparations include the making safe of all facilities in the forecast radius to gales, and the evacuation of non-essential personnel from offshore operations in the area," the spokesperson said.

Meanwhile, a spokesperson representing Woodside said that the company is taking the necessary precautions to safeguard its people and assets in response to Cyclone Peta.

Cyclone Peta follows closely on the heels of Cyclone Narelle, which passed offshore Western Australia in the second week of January.

Quintella has reported on the upstream and downstream oil and petrochemicals markets from 2004. Email Quintella at quintella.koh@rigzone.com.

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Chesapeake Energy to Host EPA in Study of Fracking Risk to Water

WASHINGTON--Natural gas producer Chesapeake Energy Corp. (CHK) has agreed to let the Environmental Protection Agency conduct extensive tests at one of its drilling sites as part of an investigation into the safety of hydraulic fracturing, an administration official said.

The testing, which will involve water sampling before and after drilling takes place, will serve as a cornerstone of a yearslong EPA study to determine whether the process known as fracking poses a risk to water supplies.

Another natural gas company, Range Resources Corp. (RRC), also may allow the EPA to work at one of its drilling sites, although an agreement has been held up by researcher liability concerns at a drilling site, a Range Resources spokesman said.

The moves suggest companies believe they can pass close inspection by government scientists and hope cooperation will lead to a favorable view of fracking in the closely watched EPA study, which is due next year and is seen by both sides as having a major effect on the future of natural-gas drilling in the U.S.

The EPA says its study also will include sites where contamination has already been reported, including drilling projects by Pioneer Natural Resources Co. (PXD), Denbury Resources Inc. (DNR), Cabot Oil and Gas Corp. (COG), and others.

But some of the most important work involves before-and-after testing of water quality and Chesapeake's participation will give the agency access to an active drilling project.

The EPA, which earlier expressed concern that such studies couldn't be completed in time for next year's report, now is expressing more confidence. An agency official said the results will be included so long as work starts before the spring.

Chesapeake, the second-largest U.S. gas producer after Exxon Mobil Corp. (XOM), and the EPA are "very close" to settling on a location and a start date, the official said. A spokesman for Oklahoma City-based Chesapeake declined to comment.

"The value of these tests is that they are really the first independent review of what's happening from start to finish. It is a data set that doesn't really exist right now," said Briana Mordick, a scientist at the Natural Resources Defense Council.

However, Glenn Miller, a University of Nevada, Reno, professor of environmental science who studies water issues, said the EPA's test results should be taken with a grain of salt.

"If a company knows they're being followed closely, they're going to be very, very careful," Mr. Miller said.

U.S. production of natural gas has surged following advances in technology that allow energy companies to extract the fuel from hard-to-reach spots. In fracking, drillers pump a mix of water, sand and chemicals deep underground at high pressure to break apart energy-rich rocks and allow gas and oil to flow to the surface. The technique, used in many onshore drilling projects, is essential to harvesting huge oil and gas deposits trapped in shale.

The boom in production has stoked fears of water contamination. Some environmental groups, such as the Sierra Club, have called for stringent new controls.

Several natural-gas companies already test water supplies before they start to drill to establish existing conditions in case they are later accused of contaminating the water. Duke University researchers also are testing water samples in areas where drilling is likely to occur to perform before-and-after analysis.

The EPA declined to identify the location of the Chesapeake drilling site. The agency had said in December it had planned to do testing at a Chesapeake project in Louisiana's DeSoto Parish, but scheduling conflicts forced it to abandon those plans.

"We're confident in the science and the facts, and that [the EPA] will reach the same conclusions as everyone else," said Matt Pitzarella, a spokesman for Fort Worth, Texas-based Range Resources.

Range Resources "would very much like to work" with the EPA, Mr. Pitzarella said. While there is a holdup related to liability waivers for EPA employees at the site, "we're confident that we can reach an agreement," he said. Range Resources has been looking at letting the EPA conduct tests at a site in Washington County, Pa.

In 2010, the EPA accused Range Resources of causing natural gas to seep into water wells near some of its gas wells in North Texas, but it dropped the claim last year. The EPA is still working on a study of natural gas drilling in Pavillion, Wyo., after the site producer, Encana Corp. (ECA, ECA.T), and other government agencies challenged a 2011 draft EPA report that suggested a link to water contamination at Pavillion.

-Daniel Gilbert contributed to this article.

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Moonta Well Achieves Highest Flow Rate in Permit PEL 218

Beach Energy reported that its Moonta-1 well has achieved the highest flow rate of its three unconventional gas exploration wells flow tested to-date in the PEL 218 Permian.

The Moonta-1 well reached a maximum controlled flow rate of 2.6 MMcf/d and is currently flowing at 1.6 MMcf/d through a 1.5-inch choke. Beach said that the well was the first to stimulate the full Patchawarra section. It is anticipated that as techniques are refined in successive wells of the program, improvements over the rates achieved to-date will be realized.

The initial two shale gas wells, Encounter-1 and Holdfast-1, both had peak gas flow rates of about 2.1 MMcf/d and were stimulated in the REM section, with a single stage in the uppermost Patchawarra formation.

Beach said in a statement that the Moonta-1 well was designed to prove up the basin centered gas play and was stimulated in nine stages through the Patchawarra formation, and a single stage in the Murteree Shale. The operator said that with gas now flowing through the well, it is clear that the BCG play exists and the company will continue to refine its understanding of the play with the upcoming program.

Moonta is located in the PEL 218 license, wholly owned and operated by Beach Energy, which is situated in the Cooper Basin.

With more than 10 years of journalism experience, Robin Dupre specializes in the offshore sector of the oil and gas industry. Email Robin at rdupre@rigzone.com.

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Eni Wins Three Licenses Offshore Cyprus

Italy's Eni announced Thursday that it has been awarded three offshore exploration blocks in the Republic of Cyprus. The firm said it has now signed exploration and production contracts with Cyprus’s Ministry of Commerce, Industry and Tourism for Blocks 2, 3 and 9, which are located in the Cypriot deep offshore portion of the Levantine Basin.

Eni was awarded the three blocks, which cover an area of around 4,800 square miles, after leading a consortium of it and Korean company Kogas. Eni is operator, with an 80-percent share in the licenses, while Kogas holds the remaining 20 percent.

Eni said that the awards, which mark its entry into Cyprus, are of significant importance for the consolidation of its position in the Mediterranean region – which it regards as a strategic area in its exploration and production portfolio.

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Russian Court Dismisses $3B Case Against BP

MOSCOW – A Russian court Thursday dismissed a $3 billion damages ruling against BP PLC and closed the case, a court official said, ending months of legal strife for the U.K. company as it finalizes a deal to sell out of its joint venture in the country and take a stake in oil giant OAO Rosneft.

An arbitration court in the Siberian town of Omsk dismissed another court's ruling from last year ordering BP to pay just over 100 billion Russian rubles ($3.1 billion) in damages to its Russian joint venture TNK-BP. That court had ruled in July that BP caused damage to TNK-BP and the interests of its minority shareholders when it sought an alliance last year with Rosneft in the Arctic exploration deal without involving TNK-BP.

The Omsk court, which was hearing BP's appeal, dismissed the case Thursday after the minority investors filed to withdraw the suit.

BP and its partners are selling TNK-BP to Rosneft in deals worth $55 billion after years of disagreements. BP will hold a 19.8% stake in Rosneft as part of its move to sell out of TNK-BP. The deals are expected to close in the first half of 2013.

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Storm Resources Discloses Asset Dispositions

Storm Resources said late Wednesday that it has has entered into a purchase and sale agreement in relation to the disposition of a field that can produce around 275 barrels of oil equivalent (boe) per day for $18 million (CAD18 million).

The asset contains an estimated 1,140 million barrels of oil equivalent (mboe) of proved plus probable reserves based on an independent report dated Mar.31, 2012, prepared by InSite Petroleum Consultants.

In addition, on Jan.18, Storm closed the sale of a minor property producing 30 boe per day for $2.1 million (CAD2.1 million).

Total proceeds of $20.1 million (CAD20.1 million) from these two dispositions will initially be used to reduce Storm's bank debt. At Dec. 31, 2012, Storm's adjusted net debt, which includes working capital deficiency, is forecast to be $40 million (CAD40 million). This amount includes the value of Storm's public company investments. Giving pro forma effect to the dispositions above, adjusted net debt at Dec. 31, 2012 would approximate $20 million (CAD20 million). Storm's bank credit facility is expected to be reduced from $62 million (CAD62 million) to $52 million (CAD52 million) as a consequence of these dispositions.

Both of the oil fields are in the Grande Prairie area of northwest Alberta.

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