Kogas Hires Advisor on Potential Sale of GLNG Stake

SEOUL - South Korean state-run utility Korea Gas Corp, or Kogas, said Thursday it has selected Samsung Securities to advise on the potential sale of a stake in Australia's $18.5 billion GLNG liquefied natural gas project.

The process - to be jointly run by Rothschild - will consider the sale of two-thirds of Kogas' 15 percent stake, which the Korean company acquired in late 2010 for 665 million Australian dollars (US $688 million), a person familiar with the matter added.

The move comes as projects like GLNG that aim to convert coal seam gas (CSG) to LNG for export are facing headwinds from rising labor and equipment costs and a high Australian dollar, eroding potential returns for investors. Confidence in the sector is also being overshadowed by competition from potential new gas exporters like the U.S. and Canada, which are preparing to ship LNG to Asia.

GLNG, operated by Australia's Santos and also counting Malaysia's Petronas and France's Total as major shareholders, has already overrun its budget by 16 percent from an original forecast of $16 billion.

Analysts think further overruns are inevitable, not least because the budget was put together when the Australian dollar was at a lower rate against the U.S. dollar. In a December report, Goldman Sachs predicted it will cost $20.6 billion to build.

The GLNG project is one of four multibillion dollar gas-export projects under construction or planned at Gladstone, a port city in eastern Australia's Queensland state. BG Group is leading development of the Queensland Curtis LNG project, while the Australia Pacific LNG venture of Origin Energy, ConocoPhillips and China Petrochemical Corp, or Sinopec, is targeting first exports in 2015. Royal Dutch Shell and PetroChina are yet to decide whether to begin building their Arrow Energy LNG project.

"No final decisions have been made on whether to divest the stake in the Gladstone project," a Kogas spokesman said by phone. Any decision will be made based on recommendations by the advisers, he said, declining to comment further.

The GLNG project involves building two processing units, known as trains, capable of producing a combined 7.8 million metric tonnes of LNG a year. Kogas will take 3.5 million tonnes of this, a similar amount will be delivered to Petronas and the remainder is to be sold on the spot market.

The move comes two years after Kogas, the world's largest corporate buyer of LNG, said it may sell around a 10 percent stake in the Gladstone project to Korean or Japanese companies. It has been seeking ways to alleviate its hefty debt burden, an obstacle that has held the firm back from aggressively expanding its overseas gas assets.

According to the company's latest financial statement, it had a debt ratio of 361 percent as of end-September 2012.

One of the company's most successful ventures has been a Mozambique gas project with Italian major Eni. Kogas has said it would like to increase its current 10 percent stake in the offshore gas field given good prospects that more reserves will be found.

A Kogas executive, however, has said Kogas would need strategic partners to help finance any further stake increase, given the wide scope of other projects it needs to pay for and execute.

Corporate activity among LNG projects at Gladstone remains high, even though none of the projects is expected to ship LNG this year.

BG Group last year sold an additional 40 percent interest in the first production facility at its Queensland liquefied natural gas project to China National Offshore Oil Corp for $1.93 billion, giving the Chinese company known as CNOOC a half-share in the plant.

Origin and Conoco are currently seeking a buyer for a combined 15 percent stake in APLNG, which would reduce their holdings to 30 percent each.

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SKK Migas: Indonesia Faces Challenges in Meeting 2013 O&G Targets

 Indonesia's upstream oil and gas unit SKK Migas warned Thursday that the country could face challenges in achieving its oil and gas targets this year, amid a stream of factors that have negatively impacted exploration and production efforts.

In a statement released Thursday, SKK Migas noted that rig procurement issues, land acquisition problems, evaluation plan delays and unforeseen weather conditions are obstacles that could lead to a lower-than-expected oil and gas production target this year.

State-backed Pertamina Hulu Energi (PHE) West Madura Offshore (WMO) was in late January, forced to shut down operations at the Production Sharing Contract sited offshore East Java due to heavy storms.

SKK Migas' Chief, Rudi Rubiandini, said that he expects the country's oil production to drop by a slight 0.2 percent this year, while its gas output is estimated to rise 4.2 percent. Indonesia's oil production dropped by 4.7 percent last year; the country's gas output declined 3.1 percent in the same period.

"We really need help from all sides," Rubiandini was quoted as telling local media Thursday.

The Indonesian government is aiming to produce 900,000 barrels per day of oil (bopd) for this year, and one million bopd in 2014. Indonesia produced 865,000 bopd of oil in 2012, well below its target of 930,000 bopd. 

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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Apache Prevents Blowout in Gulf of Mexico Well

HOUSTON - Apache Corp. has detected an underground flow of natural gas at the site of a shallow-water exploratory well in the U.S. Gulf of Mexico, the company and U.S. regulators said.

Apache evacuated 15 nonessential workers and shut in the well, located about 50 miles east of Venice, La., after the company prevented a blowout at the well. About 50 workers remained on board, and there were no injuries.

In a statement posted on its website Thursday, the Bureau of Safety and Environmental Enforcement, which oversees the safety of offshore energy operations, said Apache successfully activated the blowout preventer aboard the jack-up rig to stop natural gas from flowing to the surface. No gas or other pollution has been detected at the location, but additional testing found an underground flow of natural gas, the BSEE said.

A blowout preventer is a tall stack of valves that can supply thousands of pounds of pressure to seal off a well in case of an emergency. The 2010 Deepwater Horizon accident, which has been attributed to a combination of factors including a failed cement job at the bottom of the well and a blowout preventer that failed to close, prompted an increase in regulatory scrutiny in the Gulf. That has included stricter blowout-preventer inspection and maintenance requirements.

In a statement, Apache said natural gas began flowing from the well during drilling operations on Feb. 4. Tests revealed natural gas had migrated from the bottom of the well, about 8,261 feet below the seafloor, to a sand formation about 1,100 feet below the seafloor. The rig was drilling in 218 feet of water.

Michael Bromwich, the former director of the BSEE, said it appeared the company and the government acted properly, but the incident is a sobering reminder that offshore drilling is a risky business.

The incident "undermines the often-repeated but erroneous claim that drilling in shallow water has few risks, and reinforces the conclusion that heightened safety and environmental standards should be applied across the board," Mr. Bromwich said in an email.

Apache said it is now working with well-control experts to stop the flow of natural gas below the seafloor. At the BSEE's direction, Apache is readying another rig to bring to the site in case a relief well needs to be drilled.

Angel Gonzalez contributed to this article.

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Endeavour Halts Drilling Ops at East Rochelle

Endeavour International, operator of the East Rochelle field, provided a drilling update on the East Rochelle well (15/27-E1y) in the UK sector of the North Sea.

Endeavour performed a routine inspection of the conductor, well head and blow out preventer systems using a remotely operated vehicle (ROV) after a severe storm that lasted several days. Inspection of the well revealed that the cement around the top of the 36-inch conductor pipe had been removed creating a non-uniform hole around the conductor, the press release stated. The hole extended about 4 to 7 feet in diameter and 25 feet in depth.

Drilling operations have been suspended on the well due to this finding and the company is now conducting a thorough analysis to identify the cause of the cement loss. The repair work to the conductor pipe is completed and an evaluation will be conducted to determine if potential fatigue damage occurred on the conductor. Once the investigation is completed, the company plans to recommence drilling operations at the East Rochelle well.

The Transocean Prospect (mid-water semisub) is slated to move to the West Rochelle area to drill a second production well, allowing for the start-up for the Rochelle development.

The Rochelle field is located on Blocks 15/26b, 15/26c and 15/27 in 453 feet (138 meters) of water in the UK sector of the North Sea. Endeavour International serves as the operator, holding a 55.6% interest and Nexen holds the remaining 44.4% interest.

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Apache Prevents Blowout in Gulf of Mexico Well

HOUSTON - Apache Corp. has detected an underground flow of natural gas at the site of a shallow-water exploratory well in the U.S. Gulf of Mexico, the company and U.S. regulators said.

Apache evacuated 15 nonessential workers and shut in the well, located about 50 miles east of Venice, La., after the company prevented a blowout at the well. About 50 workers remained on board, and there were no injuries.

In a statement posted on its website Thursday, the Bureau of Safety and Environmental Enforcement, which oversees the safety of offshore energy operations, said Apache successfully activated the blowout preventer aboard the jack-up rig to stop natural gas from flowing to the surface. No gas or other pollution has been detected at the location, but additional testing found an underground flow of natural gas, the BSEE said.

A blowout preventer is a tall stack of valves that can supply thousands of pounds of pressure to seal off a well in case of an emergency. The 2010 Deepwater Horizon accident, which has been attributed to a combination of factors including a failed cement job at the bottom of the well and a blowout preventer that failed to close, prompted an increase in regulatory scrutiny in the Gulf. That has included stricter blowout-preventer inspection and maintenance requirements.

In a statement, Apache said natural gas began flowing from the well during drilling operations on Feb. 4. Tests revealed natural gas had migrated from the bottom of the well, about 8,261 feet below the seafloor, to a sand formation about 1,100 feet below the seafloor. The rig was drilling in 218 feet of water.

Michael Bromwich, the former director of the BSEE, said it appeared the company and the government acted properly, but the incident is a sobering reminder that offshore drilling is a risky business.

The incident "undermines the often-repeated but erroneous claim that drilling in shallow water has few risks, and reinforces the conclusion that heightened safety and environmental standards should be applied across the board," Mr. Bromwich said in an email.

Apache said it is now working with well-control experts to stop the flow of natural gas below the seafloor. At the BSEE's direction, Apache is readying another rig to bring to the site in case a relief well needs to be drilled.

Angel Gonzalez contributed to this article.

Copyright (c) 2012 Dow Jones & Company, Inc.

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Encana Posts Smaller 4Q Loss; Results Beat Views

Encana Corp., which has been grappling with a slump in natural-gas prices, posted a fourth-quarter loss that was much smaller than its year-earlier loss and better than analyst expectations.

The Calgary, Alberta-based natural-gas focused company said it lost $80 million in its latest quarter, compared with a loss of $476 million a year earlier.

Operating earnings, which exclude amounts related to hedging and impairments, improved to $296 million, or 40 cents a share, from $232 million, or 31 cents, a year earlier.

The Thomson Reuters mean estimate was for a profit of 33 cents a share.

Cash flow dipped 18% to $809 million, or $1.10 a share.

Natural gas production averaged 2.95 billion cubic feet a day, down 15% from a year earlier, while liquids production jumped 51% to 36,200 barrels a day.

Encana said it's budgeting about 80% of its 2013 operating budget to light oil and liquids-rich natural gas plays.

Capital spending for 2013 is projected at $3.0 billion to $3.2 billion and cash flow at $2.3 billion to $2.5 billion. It's targeting net divestitures in the range $500 million to $1.0 billion.

Encana said it expects oil and natural gas liquids production this year to be between 50,000 and 60,000 barrels a day, with annual natural gas production around 2.8 billion to 3.0 billion cubic feet a day.

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The Philippines Pushes Ahead with Offshore Development Efforts

As the 12th most populous nation in the world, the Philippines is grappling with an uncontrollable energy thirst – common among emerging economies – amid brisk rural-urban migration.

The Philippines will to be home to some 101.2 million people by 2014, up 5.4 million from 2011, according to the country's Commission on Population. The country has a median age of 22.2, and the United Nations has predicted that the working-age population will start becoming particularly prominent in 2015.

With an expected growth rate of around 2 percent per annum, it comes as no surprise to industry watchers that the Philippines has started focusing on developing its petroleum sector. The Philippine Department of Energy (DOE) said it aims to make the country 60 percent self-sufficient in energy by 2024 in a 2011 public address.

In the same year that the DOE committed to raise the country's energy self-sufficiency, the agency launched its largest ever petroleum block contracting round. The fourth Philippine Energy Contracting Round (PERC 4), which was launched June 30, 2011 saw 15 oil blocks – 12 offshore and three onshore – spanning an area of more than 25.5 million acres (10 million hectares) being offered.

The contract areas cover hydrocarbon prolific areas within the basins of the Northwest Palawan, East Palawan, Sulu Sea, Mindoro-Cuyo, Cagayan, Central Luzon and Cotabato.

The country has 27 active service contracts (SC) for oil, according to the DOE. Production is dominated mostly by state-backed Philippine National Oil Company (PNOC) and several large international operators such as Exxon Mobil Corp., Shell Philippines Exploration B.v., Nido Petroleum Ltd., BHP Billiton Petroleum and Galoc Production Company.

The Philippines produced some 1.64 million barrels of oil in 2012, a remarkable achievement considering that the country produced no oil before 2000, according to the DOE. The Galoc field, sited 37 miles (60 kilometers) northwest of Palawan Island, accounted for 1.5 million barrels. The Nido oil field is the second largest producing field, followed by the Matinloc and North Matinloc oil fields.

"Although [the country's] current production of crude oil is quite modest, the Philippine petroleum industry may have significant potential in the disputed area of the South China Sea Basin, which is adjacent to the Northwest Palawan Basin," according to an August 2012 report published by the International Monetary Fund.

With the Philippines government showing a renewed commitment to expediting exploration activity, several companies have responded by ramping up efforts on the exploration and surveying fronts.

Manila moved to challenge China's claim to most of the South China Sea/West Philippine Sea at a Jan. 23 United Nations tribunal.

"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 Philippines Department of Foreign Affairs (DFA) said in a public statement issued the same day.

Several days later, Forum Energy Philippines disclosed that it secured a two-year extension from the DOE to drill two appraisal wells in an offshore petroleum license, SC72, located in territory claimed by China in the South China Sea.

SC72 is sited west of the Palawan Island in the South China Sea, spanning 3,398 square miles (8,800 square kilometers). Results from a 248-square mile (96-square kilometer) 3D seismic survey of the license indicated a mean volume of 3.4 trillion cubic feet of gas-in-place with significant upside, Forum revealed in its 2011 earnings report.

The company plans to start on its second sub-phase work program on SC72, which involves the drilling of two appraisal wells.

Beyond the SC72 acreage, other oil and gas blocks around the Reed Bank are also manifesting probabilities of rich recoverable reserves, the DOE said in a separate 2011 report.

Meanwhile, Nido Petroleum confirmed in a Dec. 19, 2012 statement that it will be drilling in SC63 and SC58 in the North West Palawan Basin. Nido plans to start drilling SC63 by November this year. Industry watchers are expecting the company to announce its drilling program soon.

The block offers numerous drill-ready prospects with multiple potential plays that include the Apribada and Biniray West prospects with 63 and 236 million barrels of oil respectively. The prospects have a gross mean prospective resource of 1.8 trillion cubic feet of gas.

Nido already has an inventory of drill-ready prospects and leads defined on 3D seismic with a drill commitment by January 2014 for SC58. The SC58 holds great potential, given its position as a deepwater block adjacent to the giant Malampaya gas field operated by Shell, Edison Investment Research noted in a December report.

Of the new blocks being offered during PERC 4, there is significant optimism surrounding the East Palawan blocks, also known as areas 10, 11, 13 and 14. Each area could contain gross mean prospective resources of 116 million barrels and 279 billion cubic feet of gas in place, according to the DOE. These blocks border on Borneo and share similar geological characteristics with existing Malaysian fields.

With such optimistic oil and gas reserve figures being made public, the area has since received considerable attention from China – a country which is as eager as the Philippines muscles in on new offshore petroleum opportunities.

"I believe there is a lot more oil and gas in the Philippines given the country's proximity to other producers in the Asia Pacific such as Indonesia and Australia," PNOC's CEO Antonio Cailao said in a statement made to Reuters last year.

"The Philippines sits in the middle of the Asia Pacific region, surrounded by countries with substantial oil and gas assets, yet the Philippines has very low proven reserves. This either means the country is extremely unlucky or it has not yet begun to scratch the surface in terms of exploring its hydrocarbons potential," Cailao later told the Oxford Business Group.

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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GE Oil & Gas: Bridging the Talent Gap

With the Great Crew Change fast coming upon the upstream oil and gas industry, many companies are looking at a number of strategies that will help them recruit the people they need to execute their plans as they expand exploration and production activities.

Major companies with big upstream operations are seeking to address this issue in the medium-to-long term by coming up with initiatives designed to promote their industry among a new generation of workers. For example, recently BP plc expanded its graduate recruitment program. In November last year, the company announced a $7.2 million scholarship program for talented students studying science, technology, engineering and mathematics at UK universities in a move designed to encourage interest in the oil and gas sector.

A far more pressing issue, however, is finding the personnel who are going to be working in upstream oil and gas during the next few years. And it is not just exploration and production companies that are facing a recruitment crisis, but also those businesses that supply the upstream sector.

Oilfield services and products supplier GE Oil & Gas used its recent annual conference in Florence, Italy to highlight the scale of the recruitment problem that the upstream industry currently faces. CEO Daniel Heintzelman confirmed that the firm plans to boost its technical offerings to oil and gas customers via a significant investment and recruitment drive.

Mindful that "50 percent of today's 10 million oil and gas workers are eligible to retire in 2015", Heintzelman said that the entire industry faces a "human resources challenge".

GE Oil & Gas, meanwhile, is "certainly looking for more talent on the technology side" and "not just in easy places to hire but in emerging markets".

GE Oil & Gas' Subsea Systems business plans to recruit "north of 2,000 people" over the next three years, said Rod Christie, president and CEO for GE's Subsea Systems business, in a meeting with Rigzone at the Florence conference.

Of course, it helps being part of a much bigger engineering conglomerate. GE not only has its oil and gas business, but has several other units that operate across a range of sectors. The group has a nuclear business and a power generation business, for example, from where relevant talent can be brought in to do things like project management.

"One of the advantages we have is there are comparable skills within GE that we can pool from other parts of the organization. So, if you think about managing large and complex projects we can pool that capability… and fast-track people in to run projects the way that we run projects in other parts of the organization," Christie told Rigzone.

As well as transfer people with the right skills from within the GE organization, there are companies operating in other industries that employ people who might be suitable for working in oil and gas.

"The other thing we have looked at and, where we are working fairly aggressively right now, is what are the parallel industries [to oil and gas], where you have similar skills sets, capabilities and mindsets," Christie said.

"People working the way you want them to work with the attention to detail and process that you want in the subsea space. So, aerospace, for example, is a great place for us to go and find people who have a level of detail attention and process mindset that transfers in."

"On top of that we've put in teams who are doing some fairly detailed competency benchmarking," Christie added, explaining that these teams then work out what people from these parallel industries might lack when it comes to the upstream energy sector so that GE Oil & Gas can get them up to speed.

"That gives us advantages in that you pick up people who have business experience, they understand working in a company and working in an industry – and the fact that it's not all theoretical – and they bring a level of experience with them."

A source for plenty of potential oil and gas sector workers comes from the military.

"What we've done is hold military career fairs. So as the military starts to drive down, we engage with them," said Christie, who explained that GE Oil & Gas managers with military backgrounds are running a lot of the sessions.

"The reason for that is the military has a very specific language and we have a very specific language, so when [ex-military people] talk about something and we talk about something they don't necessarily understand that the skillset they've got is the same skillset that we are referring to."

GE also has a "Junior Officer Leadership Program" that former junior officers in the military can go through that is designed to prepare them for working in the group. This is much like a graduate recruitment program, and involves three eight-month rotations that help the participants of the program determine which part of the company they will end up working in.

This focus on recruiting from the military appears to be going well. The Subsea Systems business hired 38 professionals with military backgrounds in the fourth quarter of 2012 alone, according to GE Oil & Gas.

Bringing personnel in from other industries means training them, but GE Oil & Gas sees itself as very hot on training and education, and even started its own GE Oil & Gas University in October 2005.These courses are run over a six-month period at the GE Florence Learning Center. As well as training the company's own staff, GE Oil & Gas University also provides junior engineers from its customers with basic managerial and technical information. The four modules included within the facility's course cover: the energy industry, industry processes, oil and gas equipment and leadership.

The organization also runs other learning centers around the world to serve local operations. In December 2011, it launched a $100 million maintenance and training center for the Australian oil and gas industry in Perth, Western Australia.

Meanwhile, GE Oil & Gas plans to launch a field engineering "university" specializing in subsea operations in Aberdeen, Scotland.

While being conscious of the need to bring high-quality personnel into GE Oil & Gas in the immediate future, Christie said the organization also has an eye on growing a pool of talent for the long term, particularly in frontier areas.

"We are partnering with universities in Western Europe who want to license or franchise degree courses into Angola and Nigeria. And we would support that activity so that we can put more students through those courses and then draw from the graduation classes into the business."

Developing the next generation of oil and gas personnel "is something we need to be starting work on right now", said Christie.

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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US Crude Oil Futures Drop 1.5% on Disappointing Data

U.S. oil futures prices tumbled 1.5% Friday as concerns about a stalling European economy sparked some profit-taking ahead of the long weekend, traders and analysts said.

News from overseas gave the market little reason to hope for an improving economy and more oil demand. Retail sales in the U.K. fell 0.6% in January, the biggest monthly decline in nine months and well short of expectations for a 0.6% increase. A decline in euro-zone imports and exports in December added to the pessimism, analysts said.

The weak European data inspired selling among traders who had ridden the oil market rally that brought prices to a two-week high of $97.31 Thursday, said Gene McGillian, broker and analyst at Tradition Energy.

"The market had a significant rally the rest of this week and...seemed ready" for a selloff, said Andy Lebow, analyst at Jefferies

"WTI finally came under some liquidation pressures," Mr. McGillian added.

The situation wasn't helped by lower-than-expected U.S. industrial production data for January. Output dropped 0.1%, versus expectations of a 0.2% gain.

Light, sweet crude oil for March delivery on the New York Mercantile Exchange settled lower by $1.45, or 1.5%, at $95.86 a barrel. Brent futures on the IntercontinentalExchange settled 19 cents, or 0.2%, lower at $117.66 a barrel.

The slide in oil prices contrasted with further gains in the benchmark U.S. gasoline contract. March reformulated gasoline blendstock futures, or RBOB, on the Nymex exchange settled 1.79 cents, or 0.5%, higher at $3.1345 a gallon. The price is up 15% from the front-month low for 2013 hit Jan. 15.

The RBOB gains came as many refineries were scaling back production amid maintenance work. Much of the price increases could be chalked to the upcoming switch to costlier summer-blended grades of gasoline in April, said Phil Flynn, analyst with Price Futures Group. Gasoline formulas are adjusted seasonally under the Clean Air Act to reduce smog formation when the weather warms up.

Heating oil futures were down 0.4% to $3.2104 a gallon.

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