EDITORIAL: Indonesia's Geological Prospects Not Enough

- EDITORIAL: Indonesia's Geological Prospects Not Enough

Friday, May 20, 2011
Knight Ridder/Tribune Business News

Most oil executives and hydrocarbon analysts agree Indonesia still has basins with large reserves and its geological prospect is quite attractive with the success ratio of oil prospecting among the highest in the world.

But that seems far from sufficient to woo new investors, as the steady fall in the country's oil and gas production and its decline from a major exporter into a net oil importer have proven. The upstream oil and gas regulatory body (BP Migas) itself acknowledged last week the average daily oil output during the first quarter was less than 900,000 barrels, far below the target of 970,000 bbl.

Last year, Indonesia also failed to achieve its output target of 965,00 bbl, lifting only 954,000 bbl.

Another piece of discouraging news, as purveyed by BP Migas executive Iwan Ratman, is that the implementation of 10 percent of exploration and production development projects this year fell behind schedule due to overlapping concession areas, arduous licensing procedures within regional administrations and land acquisition problems.

Even state oil company Pertamina suffered many delays in exploration works: It planned to drill 147 new wells this year but managed to complete only 25 wells in the first quarter. Worse still many producing fields suffered from unscheduled shutdowns, power-supply disruptions and damages to pipelines.

The three-day 35th annual oil and gas industry convention and exhibition of the Indonesian Petroleum Association which opened on Wednesday should be a great opportunity for the government and oil executives to thrash out the most pressing problems that stand between investors and the geological prospect.

The theme of the convention "Indonesia energy, growth, security and sustainability" fits well with the current situation Indonesia is facing within the hydrocarbon industry.

President Susilo Bambang Yudhoyono pledged at the opening of the 33rd IPA convention in 2009 to resolve regulatory, bureaucratic problems and lack of legal uncertainty that had affected the petroleum industry.

But there remained big concerns about uncertainty over cost-recovery regulations, corruption, interference by government agencies, the sanctity of contracts and the general regulatory structure of the upstream and downstream oil and gas industry. Legal and regulatory uncertainty and inefficient bureaucracy are especially inimical to investors in the upstream segment of the industry as this business involves high risks and requires big capital.

The hydrocarbon industry requires an even better investment climate now because most of the undiscovered, prospective basins are located in frontier, eastern areas.

The eastern regions have potentially big reserves that are not proven yet, but their prospecting requires sophisticated technology and huge investment, estimated at 10 times as large as those in Java and Sumatra, thereby involving bigger risks. Only by increasing proven oil and gas reserves will Indonesia be able to make its production sustainable and sufficient to meet its steadily rising consumption along with the constant expansion of its economy.

But the only way to enlarge its proven hydrocarbon reserves is to increase investment in exploration.

Copyright (c) 2011, The Jakarta Post, Indonesia / Asia News Network

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Utica, Upper Devonian Reserves in Pa. May Match Marcellus' Bounty

Utica, Upper Devonian Reserves in Pa. May Match Marcellus' Bounty

Monday, April 11, 2011
The Philadelphia Inquirer
by Andrew Maykuth

Natural gas drillers are accelerating exploration of several Appalachian rock formations that sandwich the Marcellus Shale beneath Pennsylvania, and some experts say the new discoveries may be as prolific as the Marcellus itself.

"What we've got is Marcellus times two," said Terry Engelder, the Pennsylvania State University geosciences professor whose Marcellus Shale estimates in 2008 first drew public attention to the region's shale gas potential.

Since The Inquirer reported in May that drillers had found recoverable gas in the Utica and Upper Devonian Shales, several operators have become more openly optimistic about a potential natural gas triple play in the region. The new discoveries add momentum to an industry that is rapidly reshaping the economy and the environment of large swaths of rural Pennsylvania.

"A year ago, I didn't have a feeling the tests were going to be as large as I've seen," Engelder said. "The implications of this are just amazing."

Range Resources Corp., the Texas company that drilled the first Marcellus well in 2004, is bullish about multiplying output from its acreage, mostly in southwestern Pennsylvania.

"The Utica and Upper Devonian could combine to equal the Marcellus," Range spokesman Matt Pitzarella said, though he cautioned that the estimates were preliminary.

At least four gas drillers, including Range, told investors this year they were exploring the formations, which lie above and below the Marcellus in a geological layer cake.

The expanding outlook of shale gas reserves goes far beyond Pennsylvania.

Worldwide estimates of gas reserves are growing because of revolutionary advances that couple horizontal-drilling techniques with hydraulic fracturing to unlock gas in long reaches of tight rocks.

The U.S. Energy Information Administration on Tuesday said technically recoverable shale gas worldwide could add 40 percent to global gas supply. China, South Africa, Argentina, and Australia have big reserves. So do Mexico and Canada.

According to the administration, American natural gas reserves are now at the highest level in 40 years. By 2035, shale gas will account for 46 percent of U.S. natural gas production.

Though gas burns cleaner than coal or oil, the escalation of an industrial extraction process that produces large volumes of toxic wastewater has raised fears about the trade-offs of shale gas. President Obama has championed natural gas development, but only if it can be done without endangering water supplies.

"It's a little disheartening the industry is wringing its hands in excitement when they clearly haven't figured out how to drill in the current shale without creating problems," said David Masur, executive director of PennEnvironment, a lobbying organization.

Pennsylvania regulators on Wednesday pressed Western Pennsylvania water suppliers to expand the scope of tests to screen for radioactive pollutants and other contaminants from the natural gas drilling industry.

So far, 2,748 Marcellus wells have been drilled in Pennsylvania -- 399 in the first three months of 2011. Experts say 50,000 wells could be drilled in the coming decades, not counting wells in other formations.

"We're still in the early stages of this," Masur said.

Awareness of the presence of gas in other Appalachian formations -- even deep ones -- is hardly new. Some operators, such as Anadarko Petroleum Corp., were attracted to Pennsylvania to explore other deep formations and then switched to the Marcellus. Range's first Marcellus well had targeted a deeper formation called the Lockport Dolomite.

The potential of the Marcellus has eclipsed all other formations. In the last 150 years, operators have produced 47 trillion cubic feet of gas from Appalachian wells, Pitzarella said. By comparison, the Marcellus Shale is believed to contain 500 trillion cubic feet, though the amount eventually recovered will be less.

In recent months, operators have begun to focus capital on some of the other formations.

Atlas Energy Inc. executives, before their company was sold to Chevron Corp., told analysts they were exploring the Utica formation and the Upper Devonian Shale.

"Both of these shale packages are prevalent throughout Western Pennsylvania and New York, where we have over 630,000 net acres," Atlas president Richard D. Weber said in August.

Consol Energy Inc., a Pennsylvania coal producer that last year moved aggressively into natural gas, said it had a promising Utica well last year in eastern Ohio.

Brandon Elliott, Consol's vice president for investor relations, told investors on Feb. 28 that a vertical well produced 1.5 million cubic feet of gas from a 200-foot-thick Utica layer 8,450 feet below the surface.

That production, which required no hydraulic fracturing, "actually would be greater than any of our other vertical wells that we drilled in the Marcellus," Elliot said.

Consol has budgeted $35 million to drill six more Utica wells later this year, he said.

Ultra Petroleum Corp. of Houston says the Utica Shale appears to be uneconomical beneath its acreage in northern Pennsylvania. But it plans to drill into a shallower Upper Devonian formation, the Geneseo Shale, this month.

"We're optimistic about this target, and we feel it has the potential to add significant value across a large part of our Pennsylvania acreage position," Douglas Selvius, Ultra's director of exploration, told investors.

John H. Pinkerton, chief executive of Range Resources, says he believes a lot of other companies will follow his lead into the Utica and Upper Devonian Shales.

Range is attracted to the additional shales because all three layers lie under much of its prime 700,000 Marcellus acres -- making those mineral leases equal in value to 1.5 million acres in other shale regions.

Pinkerton said production costs for the new wells would be lower than those of the original wells because many will use the same infrastructure -- the same well pads, roads, and pipelines now being installed for the Marcellus wells.

"The incremental cost to develop the Upper Devonian and Utica will be reduced by approximately one-third versus the development of these zones on a stand-alone basis," Pinkerton told analysts in March. "We believe this will allow us to continue to drive down the cost of the entire play."

The new shales also seem more promising in Western Pennsylvania areas where the Marcellus produces "wet gas" that contains liquid fuels in addition to natural gas. Those areas are considered attractive in the current market because liquids, which are valued according to oil prices, which are soaring, fetch a premium.

Some analysts say the Utica and Upper Devonian Shales have limited promise.

Subash Chandra, a Jeffries & Co. managing director, said the Utica formation "is not going to work" in much of Pennsylvania because it may not contain attractive quantities of natural gas in its deepest parts.

"The real Utica play is in Ohio, where it's shallower," he said.

As Marcellus drillers have discovered, not all shale acreage is created equal.

Encana Corp., a Canadian driller, last year pulled up stakes in Luzerne County, near Wilkes-Barre, after its wells produced disappointing results, marking what may be the productive boundary of the Marcellus.

According to industry experts, some deep Marcellus pockets on its eastern edges are "baked" -- they received too much heat over the ages and no longer contain commercial quantities of natural gas.

Alaska Governor Asks Govt to Expedite Offshore Drilling Projects

Alaska Governor Asks Govt to Expedite Offshore Drilling Projects

Friday, April 01, 2011
Dow Jones Newswires

by  Cassandra Sweet

Alaska's governor asked federal regulators to move ahead in allowing new oil development in the Arctic Ocean, as the state looks for ways to shore up declining production.

In a letter sent Thursday to U.S. Interior Secretary Ken Salazar, Gov. Sean Parnell wrote that "Alaska is the United States' most important and abundant domestic source of future oil and gas." He cited a 2008 U.S. Geological Survey report that estimated more than 10 billion barrels of oil and more than 100 trillion cubic feet of natural gas lay beneath the surface of Alaska's Beaufort and Chukchi Seas. Parnell seized on current concerns in the U.S. about the stability of foreign sources of oil, amid turmoil in the Middle East and rising oil prices.

"We need to develop and increase our domestic supply of oil and gas," Parnell wrote.
Parnell and other Alaska officials have been working to streamline oil production taxes and take other measures to attract more onshore and offshore oil and natural gas development in Alaska. Parnell has introduced legislation, currently working its way through the state legislature, that would slash oil production taxes put in place by his predecessor, former Alaska Gov. Sarah Palin.

Parnell said Wednesday that he had set a "new goal for Alaska" of 1 million barrels of oil production per day through the Trans Alaska Pipeline System within ten years. Current oil production shipped from Alaska's North Slope 800 miles to the port of Valdez through the pipeline system is about 600,000 barrels per day, down from its peak of about 2 million barrels a day 20 years ago.

While the state has encouraged production on state lands and in state waters, for which the state would earn production royalties, officials are also keen to see new offshore drilling in the Outer Continental Shelf, as Alaska collects fees from oil shipped through the Trans Alaska Pipeline.
Alaska's government has also encouraged development of a natural gas pipeline that would ship gas from the North Slope to Canada and the Continental U.S. An alternative project would entail building a liquefied natural gas terminal that would export Alaska gas to overseas markets.

TransCanada and ExxonMobil are developing a $41 billion gas pipeline that would stretch 1,700 miles (2,700 kilometers) from the North Slope to a network of pipelines that connect Alberta, Canada, to the Midwest. A joint venture owned by BP and ConocoPhillips called Denali, has a rival Alaska pipeline plan, with a similar price-tag. Both sets of developers have held open seasons to determine interest by gas shippers in their projects. The companies have not yet released the results of their open seasons.

Tethys Contracts Rig, Accelerates Drilling Program in Oman

Tethys Contracts Rig, Accelerates Drilling Program in Oman

Wednesday, March 30, 2011

Tethys Petroleum Ltd.

The development and exploration program on Blocks 3 and 4 onshore the Sultanate of Oman accelerates after a second drilling rig has been contracted. The first well being drilled by this rig is the Farha South-6 well ("FS-6") on Block 3.

The new rig, a 750 horsepower Deutag T-55, is operated by UK drilling contractor KCA Deutag Drilling Company. The new rig will be used alongside the Abraj 204 rig already in use on the Blocks, and currently drilling the SE-7 exploration well on Block 4.

"We are very pleased that the work program of Blocks 3 and 4 of Oman is been accelerated, underpinning both the extent of Blocks 3 & 4 areas which remain un-explored to-date as well as remaining geological uncertainties before a fully-fledged development plan is put in place.

Two rigs will allow a speedier drilling schedule for 2011," said Magnus Nordin, Managing Director of Tethys Oil AB.

FS-6 is drilled as a vertical well, designed to target the lower Barik formation. The drill site is located 140 meters southeast of well FS-4 and 750 meters south-southwest of well FS-3.

Tethys has a 30 percent interest in Blocks 3 and 4. Partners are Mitsui E&P Middle East B.V. with 20 percent and the operator CC Energy Development S.A.L. (Oman branch) holding the remaining 50 percent.

OGX Reports Operational Reports for 2010

OGX Reports Operational Reports for 2010 

Monday, March 28, 2011
OGX S.A.

OGX announced its 2010 results. The following financial and operating information is presented on a consolidated basis, in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board - IASB, in reais (R$), unless stated otherwise.

"2010 was a year of tremendous achievements for OGX. Our drilling success and identification of extraordinary accumulations in the Campos, Santos and Parnaiba basins validated the geological models developed by our team, revealed the significant potential of our portfolio located mostly in shallow waters, and encouraged the mapping of additional prospects. With 9 drilling rigs now at our disposal, we are also prepared to enter another exploratory cycle in under-explored basins, such as the Espirito Santo and Para-Maranhão, as well as commence seismic studies in five recently-acquired blocks in Colombia," commented Mr. Paulo Mendonça, OGX's General Executive Officer.

"In particular, I would like to highlight our accomplishments in the Campos Basin, where we achieved a success rate of 100% and registered excellent discoveries, most of them located in an extensive carbonate platform, which had its production potential proved through one of the best horizontal well drill-stem tests ever performed in Brazil," added Mr. Mendonça.
"With all necessary equipment already procured from renowned suppliers, the drilling of the first production well and related drill-stem test both completed, we are on track and poised to reach a very important milestone for OGX with the initiation of production in the third quarter of 2011. The successful horizontal well drill-stem test recently performed in Waimea, where we will begin our production, surpassed our expectations. We look forward to conducting the upcoming extended well test, which signals the beginning of production and, ultimately, commercialization of our resources," noted Reinaldo Belotti, Production Officer of OGX. 

2010 Highlights and Subsequent Events

• Drilling of 26 wells during the year of 2010 and 11 in the subsequent months in the Campos, Santos and Parnaíba Basins;
• Confirmed the existence of important oil-bearing regions in the Campos basin: an extensive carbonate platform in the Albian section, as well as important sandstone reservoirs in the Tertiary of the BM-C-41, BM-C-42 and BM-C-43 blocks in the south of the Campos Basin, and another one in BM-C-39 and BM-C-40 blocks, more to the north, with large discoveries in the Santonian, Albian and Albian-Cenomanian sections;
• Performed several drill-stem tests, proving high levels of productivity in several discovered accumulations;
• Concluded the drilling of the first horizontal well (OGX-26HP) of the Waimea accumulation, which tested and confirmed the productive potential of 40,000 barrels per day and productivity index of 100m³/day/kgf/cm² in carbonate reservoirs in the Campos Basin. OGX's production phase will commence at this well through an extended well test (EWT);
• Three discoveries in the Santos Basin, with the identification of liquid hydrocarbons and associated gas;
• Revealed the great hydrocarbon-bearing potential in the Parnaíba Basin with the results obtained in the drilling of the wells OGX-16 and OGX-22, allowing for a volume estimate of potential resources of approximately 15 trillion cubic feet (Tcf) of natural gas in the region;
• Acquired five high-potential exploratory blocks in three onshore basins in Colombia: Cesar-Ranchería, Lower Magdalena Valley and Middle Magdalena Valley Basins;
• Procured all of the essential equipment for beginning production in the Waimea accumulation in the Campos Basin. 

Exploratory Campaign

2010 was a year of extraordinary accomplishments and major achievements for OGX, notable for significant discoveries and the confirmation of the high productivity potential of our main hydrocarbon accumulations. We intensified our exploratory campaign and conducted important drill-stem tests that confirmed the Company's geological model and the potential of the discoveries we have made. These tests yielded fundamental information that provided for a better understanding of the reservoirs that had been discovered in the Campos Basin, allowing us to further enhance the calibration of the production model to be put into place.

At the moment we are drilling the 39th well of OGX, which added to the four other wells drilled by Maersk Oil, bring the total number of wells drilled in the Campos, Santos and Parnaíba Basins to 43 in approximately 18 months since the beginning of our exploratory campaign. Of the 43 total wells, 26 were drilled in 2010, demonstrating the intensification of our activities, and resulting in important discoveries, some of them in areas that until now had been under-explored, including the Parnaíba onshore basin in the interior of the state of Maranhão. These results were made possible due to both a more robust operating structure and the superior geological knowledge that has been acquired about the region. We expanded the number of available drilling rigs from four to nine and now have nearly 5,000 people working on our behalf including outsourced personnel. 

Campos Basin

We ended 2010 with 18 wells drilled in the Campos Basin, all of which identified hydrocarbons, confirming a success rate of 100% in this basin. Of this total, 11 were drilled in the BM-C-41, BM-C-42 and BM-C-43 blocks and allowed for the identification of several accumulations in different geological ages, confirming the presence of a vast oil-bearing province in these blocks. Through the wells OGX-2A, OGX-3, OGX-5, OGX-6, OGX-7A, OGX-8, OGX-10, OGX-15, OGX-20, OGX-21D, OGX-26HP, OGX-28, as well as the MRK-3/4 wells, we have also confirmed the existence of an extensive carbonate platform in the Albian section with great permo-porosity conditions and good quality oil. Moreover, we recorded important discoveries in the Tertiary age and in the Aptian section, reaffirming the enormous potential of the region.

We also began our drilling activities in the blocks BM-C-39 and BM-C-40, located between the Peregrino and Polvo fields, and have obtained excellent results, especially with the OGX-14 (Peró), OGX-18 (Ingá) and OGX-25 (Waikiki) wells. For OGX-14 and OGX-18, drill-stem tests were performed which identified production potential of 3,000 barrels/day using a vertical well for the Peró accumulation that could reach 15,000 barrels/day using a horizontal well, and 8,000 to 12,000 barrels/day through a vertical well at the Ingá accumulation that could reach 25,000-35,000 barrels/day through a horizontal well. The tests also enabled us to measure the quality of the oil at approximately 27° API in each accumulation. Well OGX-25, also known as Waikiki, was an exceptional discovery with the largest detected net pay of approximately 145 meters in the Albian-Cenomanian section.

In addition to the exploratory wells, the first appraisal well for the Waimea accumulation, OGX‐21D (BM-C-41 block) was drilled. It was converted into a horizontal well, OGX-26HP, which extended 1,000 meters within the carbonate reservoirs of the Albian section of the Waimea accumulation, originally discovered by well OGX‐3. The well OGX-26HP, which will be OGX's first production well, was tested and registered a productivity index (PI) of 100m³/day/kgf/cm², one of the highest seen to date in Brazil, as well as a production potential of 40,000 barrels/day and oil gravity of approximately 20° API. This well is currently equipped for an extended well test (EWT) that could record flows of up to 20,000 barrels/day and reach even higher flow levels in a definitive project scenario. The results to date have exceeded initial expectations regarding the Waimea accumulation and offer an even more solid foundation for the initiation of OGX's production phase.

Besides this, two other appraisal wells in the Pipeline (OGX-36D) and Waikiki (OGX-35D) accumulations confirmed their extensions, advancing significantly the delineation of these accumulations, which are respectively located in the southern and northern blocks of the Campos Basin. These directional wells, which were drilled at respective distances of 2.6km and 2.0 km from the wildcat wells, were the pilots for the horizontal wells in these accumulations. Therefore, OGX initiated the drilling of the first horizontal well in the Pipeline accumulation (OGX-39HP) which will be used in the future for production in this area. 

Santos Basin

With respect to the Santos Basin, of particular note was the drilling in the Natal prospect (OGX-11D) in the BM-S-59 block adjacent to the Mexilhão field, which identified liquid hydrocarbons and associated gas in the Santonian section with net pay of around 75 meters. The liquid hydrocarbons proved to be of excellent quality, rated at about 41° API, indicating a higher level of attractiveness of the project. Two other wells registered important discoveries: Belém (OGX-17, with net pay of 43 meters in the Albian section), located in the BM-S-56 block; and Aracajú (OGX-19, with net pay of 40 meters in the Santonian section), located in the BM-S-58 block.

Drilling of the OGX-12 (Niterói), OGX-23 (Ilhéus) and OGX-24 (Itagi) wells has been concluded and resulted in shows of non-commercial hydrocarbons. However, the information acquired through these wells has been of great importance in the calibration of a new geological model for the region. In addition, with the transfer of exploratory rights of the BM-S-29 block from Maersk to OGX, the Company now owns 100% of this block, which is in the evaluation phase. To date, the company's success rate in the Santos Basin has been approximately 60%. 

Parnaíba Basin

In the Parnaíba Basin, the Company's subsidiary OGX Maranhão, drilled two wells in the PN-T-68 block, reaffirming the great oil-bearing potential of this new frontier which had not been explored since the 1980s. In the first well, OGX-16 (Califórnia), an important gas discovery was made in the Devonian section with a drill-stem test that encountered 1,900-psi pressure and generated a flame 15 meters long. In addition, evidence of gas was also encountered in the Pimenteiras and Itaim formations, also in the Devonian section. The data obtained through this drilling campaign, coupled with the seismic information recently acquired in the area as well as technical analysis, have made it possible to identify approximately 20 prospects similar to the one drilled by OGX-16 and to estimate a volume of resources of approximately 15 trillion cubic feet (Tcf) of natural gas for our portfolio in this region. In the second well, OGX-22 (Fazenda São José), two accumulations were found with net pay of 49 and 47 meters in the Poti and Cabeças formations, respectively. The top of the Poti formation was tested with exceptional results which indicated a production potential of up to 3.4 million m³ per day in Absolute Open Flow (AOF).

These estimates point to a production potential for the region of approximately 15 million cubic meters per day of natural gas. Based on this relevant new data, OGX decided to review the scope of its exploratory campaign for the region and boosted the forecast for the number of wells to be drilled from 7 to 15. 

Drilling Activity in Progress operated by OGX

• 1-OGX-30-RJS, also known as Salvador prospect, is being drilled by the rig Ocean Quest in the BM-S-58 block in the Santos basin. Drilling was initiated on January 11th;
• 1-OGX-33-RJS, also known as Chimborazo prospect, is being drilled by the rig Pride Venezuela in the BM-C-41 block in the Campos basin. Drilling was initiated on February 3rd;
• 1-OGX-34-MA, also known as Bom Jesus prospect, is being drilled by the rig QG-1 in the PN-T-68 block in the Parnaíba basin. Drilling was initiated on February 13th;
• 1-OGX-37-RJS, also known as Potosi prospect, is being drilled by the rig Ocean Ambassador in the BM-C-43 block in the Campos basin. Drilling was initiated on March 6th;
• 3-OGX-38-MA, the first appraisal well of the Fazenda São José accumulation, is being drilled by the rig BCH-05 in the PN-T-68 block in the Parnaíba basin. Drilling was initiated on March 25th;
• 9-OGX-39HP-RJS, first horizontal well of the Pipeline accumulation, is being drilled by the rig Ocean Star in the BM-C-41 block in the Campos basin. Drilling was initiated on March 25th. This well will be used in the future for production in the area.

The drilling rig Sea Explorer, which drilled well 9-OGX-26HP, an appraisal well of the Waimea accumulation in which the extended well test (EWT) will be performed, will drill the third appraisal well of the Pipeline accumulation.
The drilling rig Ocean Lexington has just drilled well 3-OGX-35D, the first appraisal well of the Waikiki accumulation, which will be used as a pilot for a horizontal well.
The jack up rig, Ocean Scepter, will start operating soon and will be dedicated to the Pará-Maranhão Basin. 

Beginning of Production

The beginning of OGX's production is expected for the third quarter of 2011. This will be an important milestone in the Company's history and will contribute to its ongoing growth trajectory in the coming years. The production will be in the Waimea accumulation, in block BM-C-41 in the Campos Basin, through an extended well test (EWT), which could record flows of up to 20,000 barrels/day.

The technology that will be employed for this first project has been widely applied within the oil industry and calls for using wet christmas trees and flexible lines that will be directly connected to the FPSO OSX-1. The well was prepared for production using the subsea centrifugal pumping method.

All of the key equipment for this phase of production has already been contracted from globally renowned suppliers and some pieces have already been delivered. Suppliers of equipment and services include: Schlumberger (Integrated Project Management and equipment and services for well completion), GE Oil & Gas (subsea X-trees), Wellstream (flexible lines and a vessel for launching the lines), Oceaneering (control umbilical), Baker Hughes (electrical subsea pumping) and OSX, which will supply the FPSO OSX-1. This FPSO (Floating Production Storage & Offloading system) is currently in Singapore, undergoing modifications to its processing plant in order to conform to the characteristics of the Waimea oil and is expected to arrive in Brazil by mid 2011.

More Gas Wells for Southwest Virginia?

More Gas Wells for Southwest Virginia?

Monday, March 28, 2011
Knight Ridder/Tribune Business News

by  Debra McCown, Bristol Herald Courier, Va.

 

Another county might soon be added to the list of those producing natural gas in Southwest Virginia: Washington. But only if the county will change its zoning ordinance to allow it.

The Virginia Gas and Oil Board has approved the creation of two drilling units and forced pooling orders for the first of four proposed gas wells in the Benhams area of Washington County.

Forced pooling is a process authorized by Virginia law that allows gas companies to drill even without leases from all affected property owners and that provides the uncooperative owners a default one-eighth royalty. The system is the subject of a set of class-action federal lawsuits in which coalfield landowners claim that gas companies benefit at the expense of citizens -- and that promised payouts are not always delivered.

Charlie Bartlett, a geological consultant who's long advocated for Washington County's gas potential, said he also has long advocated for landowners getting their rightful royalties when gas is produced from beneath their land, and he's making it a point to go about the project in Washington County the right way.

He also said that Washington County could ultimately have many more gas wells.

"If those [first ones] are successful, it will lead to a couple of dozen wells," Bartlett said. "So basically we're hoping for the establishment of a new gas field in Washington County."

Abingdon-based Southeast Land and Mineral wants to drill the proposed wells in an area about a mile north of Benhams, Bartlett said, about five miles north of Bristol and eight miles northwest of Abingdon. He also said the county has gas development potential in the area "between about the North Fork of the Holston and about Route 700."

Were Washington County to enact a severance tax, each well could generate thousands of dollars in revenue, Bartlett said, not to mention thousands in royalties for landowners and the creation of jobs.

"We're hoping that we can make them [Southeast Land and Mineral] some money, make the landowners some money, make the county some money and make the state some money, and everybody will be happy," Bartlett said.

Regarding the concerns raised by the federal lawsuits, Bartlett said he does not anticipate any effects on his project -- except the possible assurance that landowners would get fairer treatment under the law.

First, however, the project, financed by a coal investor from Kentucky, must hurdle the zoning ordinance that currently prohibits natural gas drilling in Washington County. And if the county agrees to change the ordinance to allow drilling, that would open the county for any gas company to operate.

"It would be sort of ridiculous for us to use gas from other places and not allow gas to be drilled here," Bartlett said.

Bartlett said he's run into some skepticism from county zoning officials. But Odell Owens, the county supervisor who represents the district where the wells are proposed, said it's an idea worth exploring.

"If we're sitting on natural gas that the landowners can benefit from extracting, and also if it can serve as a revenue source for the county, we have to look at it," Owens said, adding that experts likely will be asked to speak before the board.

While Owens said the county's groundwater resources are precious, he suggested that if drilling can be done safely -- protecting that natural resource -- he'd be supportive.

County Administrator Mark Reeter said he doesn't know why the county's zoning ordinance doesn't mention -- and therefore doesn't allow -- drilling, and county officials are just beginning to research what gas drilling is about.

At a Feb. 22 meeting of the Washington County Board of Supervisors -- more than six months after the county's Board of Zoning Appeals affirmed a decision denying permission to drill -- a man representing the company came to extol the virtues of gas production.

"We need to get all the energy we can from beneath the soils of the U.S. instead of being held hostage," Gus Sorensen of Bristol told the board members. "I hope that any sort of rules and regulations can be taken care of so we can extract this energy."

At a county board meeting last week, Damascus resident Judith McBride spoke in opposition to the zoning change that would allow drilling, citing potential risks to water supplies from wastewater disposal. Originally from Pennsylvania, McBride compared the impact of drilling on her family farm back home to the effects of strip mining.

In Abingdon, long an economic center for the coal and gas-producing region of Southwest Virginia and home to many who moved away from the environmental downside of life in coal country, it's not clear yet how residents will react to the proposal.

However, there is no coal -- only gas -- in Washington County.

And, Bartlett said, he has no intention of drilling near the town of Abingdon. Plus, he said, the county, through its zoning ordinance, could restrict drilling to certain areas.