Center Formed to Provide Shale Performance Standards

A group of leading environmental organizations, philanthropic foundations, and energy companies have collaborated to form a unique center to provide producers with certification of performance standards for shale development. The Center for Sustainable Shale Development (CSSD) has established 15 initial performance standards designed to ensure safe and environmentally responsible development of the Appalachian Basin's abundant shale gas resources. These standards will form the foundation of the CSSD's independent, third-party certification process.

"CSSD is the result of an unprecedented effort that brought together a group of stakeholders with diverse perspectives, working to create responsible performance standards and a rigorous, third-party evaluation process for shale gas operations," said Robert Vagt, president of The Heinz Endowments. "This process has demonstrated for us that industry and environmental organizations, working together, can identify shared values and find common ground on standards that are environmentally protective."

CSSD's founding participants are:

ChevronClean Air Task ForceCONSOL EnergyEnvironmental Defense FundEQT CorporationGroup Against Smog and Pollution (GASP)Heinz EndowmentsCitizens for Pennsylvania's Future (PennFuture)Pennsylvania Environmental CouncilShellWilliam Penn Foundation

Technical support has been provided by Lawrence Livermore National Laboratory, ICF International, and the law firm of Eckert Seamans Cherin & Mellott.

"While shale development has been controversial, everyone agrees that, when done, producers must minimize environmental risk," said Armond Cohen, executive director at Clean Air Task Force. "These standards are the state of the art on how to accomplish that goal, so we believe all Appalachian shale producers should join CSSD, and the standards should also serve as a model for national policy and practice."

Through discussions over the past two years, CSSD participants established a shared vision of performance and environmental risk minimization for natural gas development in the Appalachian region. The group's participants have worked to adopt a set of progressive and rigorous performance standards based on today's understanding of the risks associated with natural gas development and the technological capacity to minimize those risks.

"CSSD is focusing on the establishment of standards that will initially address the protection of air and water quality and climate, and will be expanded to include other performance standards such as safety," said Nicholas J. DeIuliis, president of CONSOL Energy. "Fundamentally, the aim is for these standards to represent excellence in performance."

Companies can begin seeking certification in these areas later this year.

CSSD also plans to develop programs to share best practices.

"Raising the bar on performance and committing to public, rigorous and verifiable standards demonstrates our companies' determination to develop this resource safely and responsibly," said Bruce Niemeyer, president of Chevron Appalachia. "Throughout the development of CSSD, the collaborative effort of environmental organizations, foundations and energy companies has been the key to achieving consensus on regional performance standards."

"This initiative is an important complement to strong regulatory frameworks. It's also a model of the regional collaborations recommended by the Shale Gas Production Subcommittee of the U.S. Secretary of Energy's Advisory Board to help drive a process of continuous improvement," said Jared Cohon, president of Carnegie Mellon University and a member of CSSD's Board of Directors.

"While the potential economic and environmental benefits of shale gas are substantial, the public expects transparency, accountability and a fundamental commitment to environmental safety and the protection of human health from the companies operating throughout the region. CSSD is a sound step toward assuring the public that shale development is being done to the requisite standards of excellence," said Paul O'Neill, former Secretary of the Treasury and retired Chairman of Pittsburgh-based Alcoa and a member of CSSD's Board of Directors.

Members of CSSD's Board of Directors are:

Armond Cohen, Executive Director, Clean Air Task Force;Jared Cohon, President of Carnegie Mellon University;Nicholas Deluliis, President of CONSOL Energy;Paul Goodfellow, Vice President, U.S. Unconventionals, Shell;Paul King, President, Pennsylvania Environmental Council;Fred Krupp, President, Environmental Defense Fund;Jane Long, Principal Associate Director/Fellow, Lawrence Livermore National Laboratory (retired);Bruce Niemeyer, President, Chevron Appalachia;Paul O'Neill, former Secretary of the U.S. Treasury Department and former CEO of Alcoa;David Porges, President and CEO of EQT Corporation;Robert Vagt, President, The Heinz Endowments; andChristine Todd Whitman, former Administrator of the U.S. Environmental Protection Agency and former Governor of New Jersey.Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

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'Extremely Successful' Lease Sale Garners $1.6B in Total Bids

The deepwater Gulf will remain a cornerstone of U.S. domestic energy portfolio for "many years to come," Acting Assistant Secretary for Land and Minerals Management and Bureau of Ocean Energy Management Director (BOEM) Tommy Beaudreau praised after the results of Central Gulf of Mexico Lease Sale 227.

Central Gulf of Mexico Lease Sale 227 garnered total bids of $1.6 billion and high bids of $1.2 billion. Fifty-two oil and gas companies took part in Lease Sale 227, which Gulf of Mexico Regional Director John Rodi said ranked in the Top Ten of lease sales in terms of high bids since leasing began in 1983.

Beaudreau thanked the oil and gas industry for its continued interest in the central Gulf, and Rodi said the recent drilling success seen in the Gulf indicates the present and future value of the Gulf of Mexico.

Statoil Gulf of Mexico LLC and Samson Offshore LLC bid $81.8 million for Walker Ridge Block 271, the highest bid received in the lease sale.

Bidding results presented a significant indication of continued interest in the deepwater Gulf. Rodi attributed the interest in deepwater to new seismic data that has been made available and successful drilling results seen in the Gulf of Mexico over the past year. The focus on the deepwater Gulf – which is more costly and requires more focus on exploration and development plans – may be a reason for a lower level of bidding seen since the previous lease sale.

BOEM received 407 bids submitted by 47 companies on 320 offshore blocks in Central Gulf of Mexico Lease Sale 227. The sale acreage includes 7,299 blocks and covers approximately 38.6 million acres, located from three to about 230 nautical miles offshore in water depths ranging from 9 to over 11,115 feet (3 to 3,400 meters).

BOEM estimates the lease sale could result in the production of .46 billion to .89 billion barrels of oil, and 1.9 trillion cubic feet to 3.9 trillion cubic feet of natural gas.

BP plc did not directly submit bids in Wednesday morning's sale, but might have possibly partnered on a bid. BP was permitted to bid in the lease sale, but due to a suspension imposed last November by the U.S. Environmental Protection Agency from obtaining new oil drilling leases and other new contracts with the federal government, the company would not have been awarded a lease.

Despite its decision not to participate in the lease sale, the company intends to continue investing at least $4 billion annually in the region over the next decade, maintaining its position as the largest investor and leaseholder in the region. BP holds leases on nearly 700 Gulf of Mexico blocks, and currently has seven rigs operating in the Gulf. The deepwater Gulf also remains a core area for BP globally.

"We hope we can reach a reasonable resolution with regulators so that America's top energy investor over the past five years can once again enter into new contracts with the U.S. government," said Geoff Morrell, BP's head of U.S. communications, in an email statement to Rigzone.

Secretary of the Interior Ken Salazar called the lease sale a "historic day" and part of the Department of the Interior's (DOI) plan to implement President Obama's "all of the above" energy strategy. However, preliminary sale information indicates the number of tracts and acres receiving bids is down almost 30 percent versus last year's offering and nearly 40 percent compared with the average of the prior five sales, according to a March 19 analyst note from GHS Research.

GHS Research analysts attributed the decline to:

a 16 percent reduction in participants versus the 2012 sale and a 37 percent decline compared with the average of the prior five salesan 18 percent decline in the number of bids per participant versus last year and a 23 percent decline relative the previous five sales

Pent-up demand also may have been a factor in the higher level seen in the previous central Gulf lease sale since it was the first following the 2010 Macondo incident. Central Gulf Lease Sale 216/222, held in June 2012, resulted in $2.6 billion in total bids and $1.7 billion in high bids. Fifty-six companies bid on 454 blocks out of the 7,434 blocks that were offered.

"I do think there is a significant amount of acreage already under lease and robust exploration activity underway throughout the Gulf of Mexico," Salazar said in an earlier conference call with reporters Wednesday, noting that more rigs are operating in the Gulf of Mexico today before the Macondo incident in 2010.

Seventy-one jackups, semisubmersibles and drillships are under contract in the Gulf of Mexico as of March 20, up slightly from the 70 rigs under contract as of April 19, 2010, according to data from Rigzone's RigLogix database. Thirty-eight semisubs and drillships are currently under contract in the region, up from 34 under contract as of April 19, 2010.

Operators' sharpened focus on the Gulf's deepwater acreage also may be another factor in the lower level compared to the previous central Gulf sale.

"Companies may not bid as much but they hone in on selective acreage," said Beaudreau.

Since Macondo, DOI has undertaken an unprecedented overhaul of federal oversight into federal exploration and raised standards, Beaudreau commented.

"We've raised standards with respect to industry, and this activity is conducted more safety and responsibly," Beaudreau told reporters. "We've seen the benefits of that with strong investment in the Gulf of Mexico."

BOEM has been able to raise these standards thanks to funding that has allowed the agency to hire additional staff. The additional workers have not only allowed BOEM to implement heightened standards, but increase the efficiency and speed of the plan review and permitting process while not cutting corners.

"We've seen tremendous progress over the last year and a half," Beaudreau told reporters in a conference call. "The fundamental lesson we drew from the MMS [Minerals Management Service] was that it was a severely underfunded agency."

However, Beaudreau fears that the sequester – which means that BOEM staffers now have limited overtime – may prolong the time period on plan reviews.

"The BOEM and BSEE [Bureau of Safety and Environmental Enforcement] are can do agencies, but now we have the fiscal constraints we have to continue with," Beaudreau said, calling the funding limits imposed by the sequester "an extremely unfortunate situation."

Salazar said he was proud of the fact that the United States now imports less than 40 percent of the oil it consumes – a dramatic change from a few years ago. He noted that that a member of Iraq's oil ministry was on hand for the lease sale to learn more about the U.S. resource bidding process.

While BOEM recently announced plans for wind energy development offshore Virginia, no mid or south-Atlantic acreage is scheduled for bidding at this time. Beaudreau said BOEM has been working with the Department of Defense to identify offshore areas where military traffic might conflict with future oil and gas exploration. BOEM announced March 14 that a wind energy research lease was issued to Virginia's Department of Mines Minerals and Energy.

GHS anticipates a shift from exploration to development drilling to monetize discoveries such as Anadarko's recently announced Shenandoah-2 results in the deepwater Gulf of Mexico, which hit over 1,000 feet of net oil pay in multiple high-quality Lower Tertiary-aged reservoirs, will pick up following nearly a 70 percent/30 percent exploration/development split in recent years, "thus we are neither surprised nor concerned with a weak showing for new exploration."

Industry associations praised the lease sale results, but called for new areas of the U.S. Outer Continental Shelf (OCS) to be opened for exploration.

National Ocean Industries Association (NOIA) President Randall Luthi said the enthusiasm evident in the sale "confirms a continuing positive trend for the offshore industry in the Gulf of Mexico" and a reminder that offshore oil and natural gas resources are vital to the United States' "all of the above energy strategy".

However, NOIA believes the "all of the above" energy strategy should apply to areas where exploration currently is not allowed, and that greater access should be allowed to the 85 percent of the OCS currently not available for leasing, Luthi commented in a statement. A lack of modern seismic data leaves the industry guessing as to its true resource potential, Luthi added.

"Opening new offshore areas will open the door to new jobs, energy, and even more revenue to the federal treasury which could be used to help reduce the federal deficit," Luthi commented in a statement.

Louisiana Mid-Continent Oil and Gas Association President Chris John said the inefficiencies of the federal 2012-2017 offshore plan cannot be ignored, despite the solid lease sale results.

"With a $77.3 billion impact on our state and over 300,000 jobs supported, the economic impact of the oil and gas industry on the state of Louisiana alone is incredible," John said in a statement.

"The Gulf of Mexico has a strong future as an attractive investment area for drilling activity and today's lease sale will create jobs and increase revenues for the state of Louisiana."

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

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North Sea's Magnolia Prospect Comes Up Dry

The Magnolia exploration well was drilled to its target depth of approximately 4,920 feet true vertical depth subsea, fulfilling the partners' license obligations.

The well hit its primary targets – the Captain, Corable and Punt sandstones within the Lower Cretaceous interval – but no significant hydrocarbons were encountered, according to Trapoil. The well will now be plugged and abandoned.

The operator of license P1610 is Dana Petroleum, which has a 45-percent interest. Partners in the license include: Summit Petroleum (25 percent), Atlantic Petroleum UK (20 percent) and Trapoil (10 percent). The P1610 license is located to the south and southeast of the producing Captain Field in the Moray Firth and is also close to the Blake and Ross fields.

In February, Trapoil reported that it was buying one third of the Trent East Terrace Area license, located in the southern North Sea, from Perenco UK.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

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Statoil Gives Go-Ahead to Smorbukk South Extension Project

Statoil reported Wednesday that, along with its partners, it has decided to go ahead with the Smørbukk South Extension project on the Åsgard development, offshore Norway.

The extension holds estimated recoverable reserves of 16.5 million barrels of oil equivalent and will be developed with a new subsea template that will be connected to existing infrastructure in the area.

Recovered gas will be re-injected into the reservoir in order to maintain pressure as oil is drained out of it. The field will be connected to the Åsgard A FPSO installation.

Astrid Helga Jørgenvåg, Statoil's asset owner for Åsgard, commented in a company statement:

"We've matured a profitable project out of a discovery from 1985. Experience from Åsgard operations, existing infrastructure and a bit of patience have contributed to an investment decision for this project.

"In addition we will consider the use of a new well technology that will increase the recovery from this type of reservoir. Smørbukk South Extension is a strategically important project that emphasizes our ambitions to increase recovery from mature areas."

The extension project will use standard equipment, and Statoil has already made investments to minimize the time from project sanction to production start-up, the firm said.

Statoil will now award several contracts for the development, it added.

Drilling operations are planned to begin in early 2015, with production start-up planned for September 2015. Total investments for the project are estimated to be around $595 million.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

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'Extremely Successful' Lease Sale Garners $1.6B in Total Bids

The deepwater Gulf will remain a cornerstone of U.S. domestic energy portfolio for "many years to come," Acting Assistant Secretary for Land and Minerals Management and Bureau of Ocean Energy Management Director (BOEM) Tommy Beaudreau praised after the results of Central Gulf of Mexico Lease Sale 227.

Central Gulf of Mexico Lease Sale 227 garnered total bids of $1.6 billion and high bids of $1.2 billion. Fifty-two oil and gas companies took part in Lease Sale 227, which Gulf of Mexico Regional Director John Rodi said ranked in the Top Ten of lease sales in terms of high bids since leasing began in 1983.

Beaudreau thanked the oil and gas industry for its continued interest in the central Gulf, and Rodi said the recent drilling success seen in the Gulf indicates the present and future value of the Gulf of Mexico.

Statoil Gulf of Mexico LLC and Samson Offshore LLC bid $81.8 million for Walker Ridge Block 271, the highest bid received in the lease sale.

Bidding results presented a significant indication of continued interest in the deepwater Gulf. Rodi attributed the interest in deepwater to new seismic data that has been made available and successful drilling results seen in the Gulf of Mexico over the past year. The focus on the deepwater Gulf – which is more costly and requires more focus on exploration and development plans – may be a reason for a lower level of bidding seen since the previous lease sale.

BOEM received 407 bids submitted by 47 companies on 320 offshore blocks in Central Gulf of Mexico Lease Sale 227. The sale acreage includes 7,299 blocks and covers approximately 38.6 million acres, located from three to about 230 nautical miles offshore in water depths ranging from 9 to over 11,115 feet (3 to 3,400 meters).

BOEM estimates the lease sale could result in the production of .46 billion to .89 billion barrels of oil, and 1.9 trillion cubic feet to 3.9 trillion cubic feet of natural gas.

BP plc did not directly submit bids in Wednesday morning's sale, but might have possibly partnered on a bid. BP was permitted to bid in the lease sale, but due to a suspension imposed last November by the U.S. Environmental Protection Agency from obtaining new oil drilling leases and other new contracts with the federal government, the company would not have been awarded a lease.

Despite its decision not to participate in the lease sale, the company intends to continue investing at least $4 billion annually in the region over the next decade, maintaining its position as the largest investor and leaseholder in the region. BP holds leases on nearly 700 Gulf of Mexico blocks, and currently has seven rigs operating in the Gulf. The deepwater Gulf also remains a core area for BP globally.

"We hope we can reach a reasonable resolution with regulators so that America's top energy investor over the past five years can once again enter into new contracts with the U.S. government," said Geoff Morrell, BP's head of U.S. communications, in an email statement to Rigzone.

Secretary of the Interior Ken Salazar called the lease sale a "historic day" and part of the Department of the Interior's (DOI) plan to implement President Obama's "all of the above" energy strategy. However, preliminary sale information indicates the number of tracts and acres receiving bids is down almost 30 percent versus last year's offering and nearly 40 percent compared with the average of the prior five sales, according to a March 19 analyst note from GHS Research.

GHS Research analysts attributed the decline to:

a 16 percent reduction in participants versus the 2012 sale and a 37 percent decline compared with the average of the prior five salesan 18 percent decline in the number of bids per participant versus last year and a 23 percent decline relative the previous five sales

Pent-up demand also may have been a factor in the higher level seen in the previous central Gulf lease sale since it was the first following the 2010 Macondo incident. Central Gulf Lease Sale 216/222, held in June 2012, resulted in $2.6 billion in total bids and $1.7 billion in high bids. Fifty-six companies bid on 454 blocks out of the 7,434 blocks that were offered.

"I do think there is a significant amount of acreage already under lease and robust exploration activity underway throughout the Gulf of Mexico," Salazar said in an earlier conference call with reporters Wednesday, noting that more rigs are operating in the Gulf of Mexico today before the Macondo incident in 2010.

Seventy-one jackups, semisubmersibles and drillships are under contract in the Gulf of Mexico as of March 20, up slightly from the 70 rigs under contract as of April 19, 2010, according to data from Rigzone's RigLogix database. Thirty-eight semisubs and drillships are currently under contract in the region, up from 34 under contract as of April 19, 2010.

Operators' sharpened focus on the Gulf's deepwater acreage also may be another factor in the lower level compared to the previous central Gulf sale.

"Companies may not bid as much but they hone in on selective acreage," said Beaudreau.

Since Macondo, DOI has undertaken an unprecedented overhaul of federal oversight into federal exploration and raised standards, Beaudreau commented.

"We've raised standards with respect to industry, and this activity is conducted more safety and responsibly," Beaudreau told reporters. "We've seen the benefits of that with strong investment in the Gulf of Mexico."

BOEM has been able to raise these standards thanks to funding that has allowed the agency to hire additional staff. The additional workers have not only allowed BOEM to implement heightened standards, but increase the efficiency and speed of the plan review and permitting process while not cutting corners.

"We've seen tremendous progress over the last year and a half," Beaudreau told reporters in a conference call. "The fundamental lesson we drew from the MMS [Minerals Management Service] was that it was a severely underfunded agency."

However, Beaudreau fears that the sequester – which means that BOEM staffers now have limited overtime – may prolong the time period on plan reviews.

"The BOEM and BSEE [Bureau of Safety and Environmental Enforcement] are can do agencies, but now we have the fiscal constraints we have to continue with," Beaudreau said, calling the funding limits imposed by the sequester "an extremely unfortunate situation."

Salazar said he was proud of the fact that the United States now imports less than 40 percent of the oil it consumes – a dramatic change from a few years ago. He noted that that a member of Iraq's oil ministry was on hand for the lease sale to learn more about the U.S. resource bidding process.

While BOEM recently announced plans for wind energy development offshore Virginia, no mid or south-Atlantic acreage is scheduled for bidding at this time. Beaudreau said BOEM has been working with the Department of Defense to identify offshore areas where military traffic might conflict with future oil and gas exploration. BOEM announced March 14 that a wind energy research lease was issued to Virginia's Department of Mines Minerals and Energy.

GHS anticipates a shift from exploration to development drilling to monetize discoveries such as Anadarko's recently announced Shenandoah-2 results in the deepwater Gulf of Mexico, which hit over 1,000 feet of net oil pay in multiple high-quality Lower Tertiary-aged reservoirs, will pick up following nearly a 70 percent/30 percent exploration/development split in recent years, "thus we are neither surprised nor concerned with a weak showing for new exploration."

Industry associations praised the lease sale results, but called for new areas of the U.S. Outer Continental Shelf (OCS) to be opened for exploration.

National Ocean Industries Association (NOIA) President Randall Luthi said the enthusiasm evident in the sale "confirms a continuing positive trend for the offshore industry in the Gulf of Mexico" and a reminder that offshore oil and natural gas resources are vital to the United States' "all of the above energy strategy".

However, NOIA believes the "all of the above" energy strategy should apply to areas where exploration currently is not allowed, and that greater access should be allowed to the 85 percent of the OCS currently not available for leasing, Luthi commented in a statement. A lack of modern seismic data leaves the industry guessing as to its true resource potential, Luthi added.

"Opening new offshore areas will open the door to new jobs, energy, and even more revenue to the federal treasury which could be used to help reduce the federal deficit," Luthi commented in a statement.

Louisiana Mid-Continent Oil and Gas Association President Chris John said the inefficiencies of the federal 2012-2017 offshore plan cannot be ignored, despite the solid lease sale results.

"With a $77.3 billion impact on our state and over 300,000 jobs supported, the economic impact of the oil and gas industry on the state of Louisiana alone is incredible," John said in a statement.

"The Gulf of Mexico has a strong future as an attractive investment area for drilling activity and today's lease sale will create jobs and increase revenues for the state of Louisiana."

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

View the original article here

Center Formed to Provide Shale Performance Standards

A group of leading environmental organizations, philanthropic foundations, and energy companies have collaborated to form a unique center to provide producers with certification of performance standards for shale development. The Center for Sustainable Shale Development (CSSD) has established 15 initial performance standards designed to ensure safe and environmentally responsible development of the Appalachian Basin's abundant shale gas resources. These standards will form the foundation of the CSSD's independent, third-party certification process.

"CSSD is the result of an unprecedented effort that brought together a group of stakeholders with diverse perspectives, working to create responsible performance standards and a rigorous, third-party evaluation process for shale gas operations," said Robert Vagt, president of The Heinz Endowments. "This process has demonstrated for us that industry and environmental organizations, working together, can identify shared values and find common ground on standards that are environmentally protective."

CSSD's founding participants are:

ChevronClean Air Task ForceCONSOL EnergyEnvironmental Defense FundEQT CorporationGroup Against Smog and Pollution (GASP)Heinz EndowmentsCitizens for Pennsylvania's Future (PennFuture)Pennsylvania Environmental CouncilShellWilliam Penn Foundation

Technical support has been provided by Lawrence Livermore National Laboratory, ICF International, and the law firm of Eckert Seamans Cherin & Mellott.

"While shale development has been controversial, everyone agrees that, when done, producers must minimize environmental risk," said Armond Cohen, executive director at Clean Air Task Force. "These standards are the state of the art on how to accomplish that goal, so we believe all Appalachian shale producers should join CSSD, and the standards should also serve as a model for national policy and practice."

Through discussions over the past two years, CSSD participants established a shared vision of performance and environmental risk minimization for natural gas development in the Appalachian region. The group's participants have worked to adopt a set of progressive and rigorous performance standards based on today's understanding of the risks associated with natural gas development and the technological capacity to minimize those risks.

"CSSD is focusing on the establishment of standards that will initially address the protection of air and water quality and climate, and will be expanded to include other performance standards such as safety," said Nicholas J. DeIuliis, president of CONSOL Energy. "Fundamentally, the aim is for these standards to represent excellence in performance."

Companies can begin seeking certification in these areas later this year.

CSSD also plans to develop programs to share best practices.

"Raising the bar on performance and committing to public, rigorous and verifiable standards demonstrates our companies' determination to develop this resource safely and responsibly," said Bruce Niemeyer, president of Chevron Appalachia. "Throughout the development of CSSD, the collaborative effort of environmental organizations, foundations and energy companies has been the key to achieving consensus on regional performance standards."

"This initiative is an important complement to strong regulatory frameworks. It's also a model of the regional collaborations recommended by the Shale Gas Production Subcommittee of the U.S. Secretary of Energy's Advisory Board to help drive a process of continuous improvement," said Jared Cohon, president of Carnegie Mellon University and a member of CSSD's Board of Directors.

"While the potential economic and environmental benefits of shale gas are substantial, the public expects transparency, accountability and a fundamental commitment to environmental safety and the protection of human health from the companies operating throughout the region. CSSD is a sound step toward assuring the public that shale development is being done to the requisite standards of excellence," said Paul O'Neill, former Secretary of the Treasury and retired Chairman of Pittsburgh-based Alcoa and a member of CSSD's Board of Directors.

Members of CSSD's Board of Directors are:

Armond Cohen, Executive Director, Clean Air Task Force;Jared Cohon, President of Carnegie Mellon University;Nicholas Deluliis, President of CONSOL Energy;Paul Goodfellow, Vice President, U.S. Unconventionals, Shell;Paul King, President, Pennsylvania Environmental Council;Fred Krupp, President, Environmental Defense Fund;Jane Long, Principal Associate Director/Fellow, Lawrence Livermore National Laboratory (retired);Bruce Niemeyer, President, Chevron Appalachia;Paul O'Neill, former Secretary of the U.S. Treasury Department and former CEO of Alcoa;David Porges, President and CEO of EQT Corporation;Robert Vagt, President, The Heinz Endowments; andChristine Todd Whitman, former Administrator of the U.S. Environmental Protection Agency and former Governor of New Jersey.Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

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Energy XXI Enters JV with Apache, Highlights GOM, La. Operations

Energy XXI provided an update highlighting activity on the Gulf of Mexico shelf and onshore Louisiana.

The company has entered into an agreement with Apache Corp. to explore for oil and gas pay sands associated with salt dome structures on the central Gulf of Mexico shelf. The area of mutual interest (AMI) includes several salt domes within a 135 block area. In addition, Energy XXI has acquired a 25 percent working interest in 21 non-producing primary-term leases with Apache. A new wide azimuth seismic program is underway to define the potential of the AMI, covering approximately 633,000 acres.

"This joint venture exemplifies our interest in exploring salt structures where new seismic data, remapping and remodeling could uncover significant hidden hydrocarbons," Energy XXI Chairman and Chief Executive Officer John Schiller said. "Our Pendragon exploration well, being drilled in the Vermilion area, is a similar analog. We are very excited about the potential of this new joint venture with Apache, a world-class operator with extensive expertise in the Gulf of Mexico."

At the South Pass 49 field, the company has continued its recompletion program to the D-65 sand. Well A-7 (56.5% WI / 47.08% NRI) was the first recompletion to come online, in December 2012, and now has a stabilized flow rate of 14 million cubic feet of gas per day (MMcf/d) gross. Well A-19 (49.4 WI / 37.0% NRI) was the second recompletion, which came online this month and currently is flowing 6 MMcf/d and 135 barrels of condensate per day gross. Well A-17 (56.5% WI / 47.08% NRI) is currently being recompleted to the D-65 sand and should be online in April. The A-6 well (56.5% WI / 47.08% NRI) recompletion to the D-65 sand will follow A-17. Since the South Pass 49 recompletion program started in October, overall field production has more than doubled.

At West Delta 73 (100% WI / 83% NRI), Maroon, the company's fourth horizontal oil well in the field, was drilled to 8,281 feet true vertical depth (TVD) / 10,071 feet measured depth (MD), including a 1,200-foot horizontal section in the F-40 oil sand. The well is currently testing and under evaluation.

"We continue to grow more confident in the upside of our horizontal oil drilling program," Schiller said. "As anticipated, our horizontal wells are trending right around our mid to high-side case, which represents about a five-fold average increase in recoverable oil per completion."

At South Timbalier 54 (100% WI / 87% NRI), Viper, Energy XXI's first horizontal well in the field, was drilled to 4,849 feet TVD / 6,670 feet MD, including a 680-foot horizontal section in the A-1 oil sand. Viper was placed online in mid-March at approximately 500 barrels of oil equivalent per day (boepd) gross. Viper is the first of a five-well horizontal program planned for the South Timbalier 54 field. Iceman, the next horizontal well in the field, has been drilled to the target depth of 6,620 feet MD, and the horizontal section is currently being drilled. To date, the A-1 sand has produced almost 30 million barrels of oil at South Timbalier 54.

The Pendragon well (50% WI / 40.6% NRI), located on Vermilion Block 178, is currently drilling past 12,400 feet TVD/14,000 feet MD with a proposed total depth of 16,300 feet TVD/ 20,400 feet MD. The exploratory well is targeting multiple sands on the south side of a salt dome.

Onshore Louisiana in St. Mary's Parish, following the acquisition of the McMoRan working interest in the Bayou Carlin field announced at the end of January, Energy XXI acquired an additional working interest in the field from a private company for $34 million. This additional acquisition takes Energy XXI's working interest in the currently producing Landers and Peterson wells at Bayou Carlin to 73.5 percent from 56.5 percent, adding 1,035 boepd in net production to Energy XXI.

"Our recent bolt-on acquisitions at Bayou Carlin represent a strategic opportunity in South Louisiana," Schiller said. "As operator of the field, we are moving quickly to prove up the extent of the discovery with the drilling of the third well in the field."

The Duplantis well (98.7% WI / 73.9% NRI) in the Bayou Carlin field was spud in late February and is drilling below 11,400 feet TVD/MD toward a proposed depth of 20,400 feet TVD/MD. Duplantis is targeting the MA-10 and MA-11A sands currently producing in existing wells, in addition to potential shallower and deeper sands that could add to the field's size.

Current production approximates 46,000 boepd net, including about 30,000 barrels of oil per day, with approximately 5,000 boepd temporarily offline due to various unrelated issues, bringing total capacity to approximately 51,000 boepd. Production for the fiscal third quarter ended March 31, 2013 and is expected to average 44,000 boepd, of which approximately 29,000 barrels per day is oil.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

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Wood Group Wins First Offshore Colombia Contract

Wood Group PSN announced it is delivering operations and maintenance services to Chevron's offshore production facilities under a new $17.5 million contract.

Wood Group PSN will provide services to Chevron's two offshore platforms (Chuchupa A and B), in the Chuchupa natural gas fields, Caribbean Sea, and two onshore natural gas fields (Riohacha and Ballenas) in the province of La Guajira, northern Colombia.

The award marks WGPSN's first offshore services contract in Colombia and will involve over 100 new jobs. The contract term is three years with an additional three year option to extend.

"Chevron is a valued customer and this award marks the expansion of our offshore business in Colombia. We are currently recruiting to bring new employees into our business to service this contract and are committed to developing a skilled and talented local workforce," Derek Blackwood, WGPSN Americas president, said.

The contract was won through a competitive tender process.

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Musings: Natural Gas Output Falls In December; Start Of A Trend?

This opinion piece presents the opinions of the author.
It does not necessarily reflect the views of Rigzone.

The Energy Information Administration's (EIA) survey of natural gas production from the Lower 48 states for the month of December 2012 showed the first decline in output since March of that year. With the continued decline in drilling rigs targeting natural gas formations, analysts are encouraged that possibly we are witnessing the first results of the drilling slowdown. The EIA's commentary associated with the release of the data, however, mentioned weather related factors impacting gas output, especially in the associated gas production from the Bakken where an early and severe winter caused a drilling and well completion slowdown. Additionally, many producers ran out of budget money before the end of the year and were forced to slow activity. If nothing else, however, the slowdown in gas output reinforces the phenomenon the industry may soon be confronting, which is the need to ramp up drilling activity to offset the steep decline in existing well production due to the nature of shale gas wells.

Overall, the initial estimate of gross natural gas production for the entire United States fell just about 1 billion cubic feet (Bcf) in December. Alaskan gas production actually rose about 0.2 Bcf while output in the Gulf of Mexico fell almost as much (-0.14 Bcf), meaning that virtually the entirety of the production decline occurred in Lower 48 basins. If we examine the revision to the prior monthly's initial production estimate, there was a reduction of 0.32 Bcf, which suggests the December production decline may only have been about 0.7 Bcf, but of sufficient size to be meaningful. Before analysts get too excited about this potential change in trend and what it might mean for natural gas prices, a new report from natural gas research firm, Bentek Energy, suggests that 2013 and 2014 will be a replay of the past several years – growth in production rather than a decline. The firm's forecast, however, calls for a slowing in the rate of increase in gas production during the next two years compared to the rate of growth experienced in the prior two years.

According to Bentek, natural gas production in the U.S. rose 3.6%, or by 1.6 Bcf per day in 2010 and increased by an average of 3.5
Bcf/d in 2011-2012. They are projecting that overall gas output will grow by 2 Bcf/d in 2013, as nine key shale basins will grow by 4.9 Bcf/d, which will be offset by other production falling by 2.9 Bcf/d. In 2014, the firm sees production increasing by 3.4 Bcf/d. An interesting point in the historical data is that in 2011 offshore gas output fell by 1.2 Bcf/d and then by another 0.9 Bcf/d in 2012. Bentek sees offshore production declining by only about 0.3 Bcf/d in 2013 and reaching steady output in 2014. If we were to exclude the impact of the decline in offshore production in 2011-12, the average annual output increase was about 4.3 Bcf/d, or nearly 0.8 Bcf/d more coming from onshore basins. By the end of 2014, Bentek foresees gas output above 70 Bcf/d, up from current production of slightly be low 65 Bcf/d.

Bentek's forecast for output is based on three primary factors. These include: debottlenecking of geographic regions where output has been constrained by a lack of infrastructure; operators continuing to focus on wet gas and associated gas from oil plays; and continued improvement in drilling rig efficiencies. The impact of the last two factors is shown in several charts from the Bentek forecast report that crystalize their views.

The chart in Exhibit 11 shows the impact of wet gas (green) output on total incremental natural gas production beginning in 2010 and continuing through the 2014 forecast period. As the chart shows, associated wet gas was only a minor contributor to gas output in 2010 but grew in 2011 as the impact of low natural gas prices drove operators to emphasize oil and wet gas formations. With natural gas prices continuing to languish in 2012, that trend became more pronounced with expected results. Because of the strong focus on natural gas liquids (NGLs) and crude oil due to high world oil prices and better investment returns for operators, Bentek sees wet gas production growing as we move through 2013 and 2014. Part of the strength in NGL and oil demand and their prices is due to debottlenecking Bentek assumes will occur based on the list of new pipeline and gas processing facilities either being built or planned to be built in the coming months.

The last major trend is the impact on shale gas costs from improvements in drilling. Exhibit 12 contains a chart showing the number of horizontal wells drilled since 2008 (blue columns), the number of horizontal rigs working (red line) and the average number of wells drilled per rig per month (black dotted line). The wells per month line in most impressive showing how after about a three-year downward trend between 2008 and 2010, the number rose in 2011 and remained essentially stable throughout the year but then started a steady upward climb throughout 2012. This rise in rig performance reflects not only improved knowledge about how and where to drill and the greater use of pad drilling facilities, but also the impact from the growing fleet of new AC (electric) rigs that bring greater capabilities for drilling deeper and longer horizontal wells.

Improvements in drilling in the Bakken have been meaningful as shown in Exhibit 13. Since the first quarter of 2010, the average time to drill a well has declined roughly 15%, although from the fourth quarter of 2010 the decline is much more significant – off nearly 40%! As the average rig can drill more wells per year and more rigs are moving into the Bakken, wells drilled have jumped in the past several quarters - from around 375 wells per quarter to 500 wells and then to a 600-wells per quarter rate for the final three quarters of 2012. The question is can the industry operate more drilling rigs in the region and will those rigs be capable of continuing to drill wells in fewer days in the future?

Last summer, the North Dakota Department of Mineral Resources presented an expected case for the future number of drilling rigs (red columns) working in the state's Bakken formation and the number of producing wells (green columns). As can be seen in Exhibit 14, the forecast calls for a small increase in the number of drilling rigs for 2013 and again in 2014, with rigs remaining flat in 2015 before spiking to a peak of just over 250 rigs in 2016. From that point the rig count begins a modest downward stepping pattern until it reaches a low point of 50 rigs in 2036 where it remains through the balance of the 2050 forecast period. As a result of the boom in drilling between 2010 and 2024, the total number of Bakken wells rises sharply from 5,000 to about 35,000. Thereafter, due to the decline in the active drilling rig count, the climb in the number of producing wells is modest reaching almost 40,000 wells in 2050.

A big challenge for producers in the Bakken is the lack of pipeline infrastructure to move associated natural gas production from the
region. Many people are familiar with the NASA photo of the United States at night showing the gas flaring in the Bakken (red) compared to the lights of Minneapolis, Minnesota on the right hand side of the picture. This picture rivals ones from the past showing the huge volumes of gas being burned in Nigeria and Russia that could be seen from space.

A chart from the North Dakota Department of Mineral Resources shows how the percentage of natural gas produced in the state is
burned. As the chart in Exhibit 16 shows, gas flaring was relatively minor until about 2005 and then it grew to about 24% in 2008 before falling 10 percentage points as a pipeline was opened up. From about 14% in 2009, the percentage of gas burned rose to the 35% area where it remains today awaiting more pipeline capacity and liquids-processing plants being built.

The Bentek natural gas production forecast relies on the continuation of the triumvirate of factors that have made oil shale plays as successful as they have been to date. Debottlenecking of various key producing basins appears a safe bet since it is based on projects already approved and in many cases already under construction with attractive returns. A continuation of improvements in drilling efficiency appears less secure as it depends on the drilling industry converting the balance of its old, conventional rig fleet into a new, AC-based one. That means higher day rates for working rigs in order for contractors to justify the investment in new rigs. What will higher dayrates mean for well economics? What happens to these oil and wet gas plays should oil prices fall from their current lofty levels? These latter considerations could impact the economics of shale drilling and thus gas output that would negatively impact the Bentek forecast since it is based on economic models employing 12-month forward strip pricing for crude oil and NGLs. The one offset to this logic is the dedication of large integrated and independent producers to drill through the period of poor economic returns because they believe in the eventual recovery of oil and natural gas prices that will reward them for their strategy.

G. Allen Brooks works as the Managing Director at PPHB LP. Reprinted with permission of PPHB.

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CNPC to Start Oil Production in Afghanistan Soon

HONG KONG - China's largest oil company is due to start commercial production of crude oil in Afghanistan shortly, heralding a resource boom that could transform the country's economy over the next decade, the country's mining minister said.

Extraction of metals and oil could account for 45% of Afghanistan's gross domestic product by 2024, Minister of Mines Wahidullah Shahrani told The Wall Street Journal Wednesday on the margins of an investment and mining conference where he is meeting potential investors.

Recent surveys have shown Afghanistan to be endowed with rich unexploited assets, but its security situation could be a sticking point for some investors.

Mr. Shahrani's comments follow President Hamid Karzai's accusations this month of U.S. collusion with the Taliban in the war-hit country, at a time when the government is trying to negotiate how many, if any, U.S. and NATO forces will remain after their mandate ends next year.

Nearly all of Afghanistan's recoverable mineral resources, estimated by the U.S. Geological Survey to be worth $1 trillion, are still under the ground, said the minister, who has held the mining portfolio for the past three years.

Output from China National Petroleum Corp. wells in northern Afghanistan will rise from zero now to 25,000 barrels a day by the end of the year, and to 40,000 barrels a day in 2014, with all the crude to be initially exported by truck through one of Afghanistan's northern neighbors, Mr. Shahrani said. The project will require an investment of $600 million, he said.

"The wells are ready for production," he said. "If we complete negotiations with our northern neighbor in the next two to three weeks, then production of the crude will begin with an initial 5,000 barrels" a day, he said.

He declined to identify which of the three northern border countries--Turkmenistan, Uzbekistan or Tajikistan--is involved, describing the talks as "very advanced". And he didn't say whether CNPC intended to move the crude to China.

Further out, Afghanistan's oil output will keep rising, providing enough of the fuel to feed a 44,000-barrel-a-day oil refinery, the country's first, which is due to be completed in two to three years.

Production from the Amu-Darya Basin, where state-owned CNPC and its Afghan partner are working, could be followed by output from the nearby Afghan-Tajik basin, from a consortium comprising Dragon Oil PLC, privately held Kuwait Energy and Turkiye Petrolleri AO, which by May should have finalized terms of an exploration and production agreement, Mr. Shahrani said.

The consortium was awarded two of the 12 blocks at Amu-Darya in December, he said.

"The geological structures there are very promising based on seismic surveys," he said, adding that exploration and test drilling would take several years.

For now, Afghanistan has to import all its fuel, mainly from Central Asia, with this being the country's largest single import item.

From May onward, Afghanistan will put additional oil, iron ore, gold and copper blocks up for international tender, the minister said.

A major obstacle to exports from landlocked Afghanistan is a lack of rail links--the only one at present is a 91-kilometer length to Uzbekistan, which connects to a central Asian network.

In a second phase, a 227-kilometer "trans-Caspian" Asian Development Bank-funded rail link to Turkmenistan, joining it to Turkey and Europe, will be built, the minister said.

Another Afghan coal and copper project is being developed by a Chinese consortium, led by state-run MCC China Metallurgical Group. The project, in Aynak, Logar province, involves building a rail link from Pakistan to Uzbekistan, which will require $4.4 billion to execute. First copper output is slated for 2014, Mr. Shahrani said.

The U.S. Department of Defense has raised major questions about whether the cost of an extensive rail system could be justified on commercial grounds, The Wall Street Journal reported in October.

Meanwhile, the government is in the final stages of talks with an Indian consortium led by the Steel Authority of India Ltd. to develop what the minister said is Asia's largest iron-ore deposit, at Hajigak, in central Afghanistan.

This will require an investment of $12 billion-$14 billion over the next decade and includes power plants as well as an export rail link that the consortium will build, he said.

Contracts are expected to be finalized by May for four major gold and copper projects, he said.

In recent years, extensive regulatory and procedural reforms introduced by the government, including a new mining law adopted in February, have given investors "more confidence about the way they will be treated and the way their investments are going to be properly protected," Mr. Shahrani said.

Foreign investors can take 100% control of projects but are encouraged to bring in local companies, the minister said, noting Afghanistan doesn't have state mining companies because "global experience has shown that in most countries they are not that effective."

"We are heading towards a transition at the end of 2014...heavy investments have been made to enhance the capability of our security forces with the active involvement of NATO and the U.S. government," he added.

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

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