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Posts Tagged ‘Exxon’

The vote on the transfer of Santa Ynez Unit (SYU), Pacific Offshore Pipeline Company (POPCO) Gas Plant, and Las Flores Pipeline System permits from Exxon to Sable Offshore was the last item on the Board’s agenda, so those of us who were streaming the meeting for that topic had to be patient.

The Sable session began with a surprise announcement that opened the possibility that perhaps the outcome might not be as expected. Supervisor Hartmann, who owns property close to the pipeline, had once recused herself from voting on this matter. When it was thought that her property was ~900′ from the pipeline, the Fair Political Practice Commission (FPPC) cleared her participation. However, after a 12/3/2025 letter from Sable informed that her property was as close as 8′ from the pipeline, the FPPC reversed its position and Supervisor Hartmann again recused herself.

Supervisor Hartmann’s re-recusal added some drama to the session given that there were two sure votes against Sable and one sure vote in favor. The swing vote would be that of Supervisor Lavagnino, who was very much supportive of the oil industry, but not Sable.

After strong but predictable presentations by the Environmental Defense Center/Center for Biological Diversity team and Sable, the floor was open to public comments. Although there were more speakers opposed to the Sable position (13), this observer found the Sable supporters (7) to be more compelling. Most were California natives who worked on the project and demonstrated a sincere commitment to the safety and environmental values that we all support. One aptly noted that California unnecessarily imports 2/3 of its oil from foreign sources, some of which aren’t particularly friendly.

As an aside, a County staffer pointed out that 400,000 barrels of SYU oil were in storage as a result of the resumption of production in May prior to receiving the necessary approvals to transport oil through the onshore pipeline.

The vote opened with Supervisor Nelson supporting the transfer of permits to Sable. His commented that the County was “attacking Sable’s finances at the same time they were trying to bankrupt them.”

Sable opponents held serve with Supervisors Capps and Lee opposing the transfer. Ms. Capps deserves credit for the sincere respect she showed for the Sable workers who were present.

So Supervisor Lavagnino would cast the deciding vote. He once again voted against the transfer noting that he was a long time supporter of the oil industry, but that he had lost confidence in Sable.

Bottom line: The outcome was as expected, but the recusal drama and strong presentations made the stream worth watching.

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Greece has licensed Block 2 to Energean Hellas LTD and HELLENiQ Energy:

  • Location: In the Ionian Sea 30 km west of Corfu Island (note: that’s 18.6 miles, not the 125 mile buffer that Florida views as sacred)
  • Water depth: 500 to 1,500 m
  • Block size: 2,422.1 sq Km, the largest unexplored offshore structure in the Mediterranean (note: Gulf of America leases are only 23.3 sq km or < 1% as large)
  • First drilling: late 2026 or early 2027. This will be the first exploratory offshore drilling in Greece since 1981!

ExxonMobil has signed a farm-in deal acquiring 60% of the concession.

  • Energean’s participation is set at 30%, down from 75%.
  • Helleniq participation is now 10%, down from 25%.
  • Energean will remain the operator during the exploration stage.
  • In the event of a commercial discovery, Exxon will assume the operatorship during the development phase.

Andreas Shiamishis, CEO of HELLENiQ ENERGY: “Greece is emerging as one of Europe’s newest and promising regions for hydrocarbon exploration and development. This transaction represents a positive step not only for the joint venture partners, but also for the Greek economy.”

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“Natural gas and LNG are fast becoming the gravitational center of the global energy system, but some energy experts said the world is only beginning to grasp the scale of what’s to come.” ~Natural Gas Intelligence

Demand and high well producibility are stimulating exploration in the high pressure, high temperature Western Haynesville (Texas) and other ultradeep onshore gas prospects. Is it time to revisit ultradeep gas on the Gulf of America shelf? See the above targets map from 2004.

20 years ago Newfield, Exxon, and McMoRan drilled pioneering ultradeep wells targeting gas-prone reservoirs below salt welds in Miocene and older formations (diagrams below). The water depths were <100 feet but well depths exceeding 30,000 feet, and high temperatures and pressures, pushed the limits of drilling technology at the time. Noteworthy wells:

  • Blackbeard West (Exxon): Spudded in early 2005 in 70 feet of water in South Timbalier Block 168. The target was gas in Miocene sands at 27,000-32,000 feet total depth. Drilling reached 30,067 feet by 2006, but was prudently suspended due to extreme pressures, temperatures (up to 600°F), and technical challenges with equipment.
  • Blackbeard West, part 2: In 2008, McMoRan re-entered the well with upgraded equipment and drilled to a record 32,997 feet below the mudline. They encountered hydrocarbon shows in multiple zones, including potential gas pay in Middle and Deep Miocene sands below 30,000 feet, validating the ultradeep concept.
  • Followup McMorRan wells:
    • Blackbeard East (2010-2011): Drilled to 33,400 feet in South Timbalier Block 144, logged potential hydrocarbons in Sparta and Vicksburg sands.
    • Davy Jones (2009-2010): South Marsh Island Block 230 in 20 feet of water; reached 29,122 feet; discovered gas in Wilcox sands, but faced flow-testing challenges.
    • Lafitte (2011): Eugene Island Block 223, found additional pay in ultradeep Miocene zones. These wells targeted gas reservoirs but encountered operational hurdles.

This program pioneered ultradeep drilling on the shelf, influencing later deepwater successes. Over the past 10 years, the deepwater industry has successfully demonstrated high pressure high temperature (HPHT) technology which could facilitate ultradeep exploration on the shelf.

Also, note that a company targeting hydrocarbons below 25,000 feet (true vertical depth subsurface) may earn an additional 3 years on their lease. (See the Notice for next week’s lease sale.) Will improved technology and demand expectations finally open the ultradeep gas frontier?

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John Smith shared the attached Santa Ynez Unit regulatory update for the 8 state agencies that have oversight roles (see regulatory fragmentation).

John notes that Exxon’s March 26 contractual deadline for Sable to have the SYU up and running is fast approaching.  What will Exxon do in the likely event that Sable fails to meet that deadline? Does Exxon want to re-enter the SYU legal and regulatory quagmire?

The SYU’s 500+ million barrels of oil, 3 deepwater platforms, and onshore processing facilities are an enormous prize, but is that prize attainable?

Meanwhile, the latest skirmish between Sable and the Office of the State Fire Marshal (OFSM) pertains to metal loss anomalies and inspection tool tolerances. The dispute is summarized in the linked filing.

Sable contends that the Fire Marshal’s letter contradicts guidance from OSFM staff and provides examples. Sable goes a step further at the end of their response by calling for the FIre Marshal to coordinate better with the experts on his staff:

We respectfully request that, given this background, you coordinate further with the expert team at OSFM and revisit the statements in your October 22nd letter.”

It’s not looking good for a quick resolution of these issues.

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Energy Secretary Chris Wright

In a post on X, Chris Wright commented:

Only in California! Newsom is blocking oil production off California’s coast from reaching their own refineries, driving gasoline prices even higher for Californians! Now, this oil production will have to be shipped elsewhere, lowering gas prices for other areas— just not for California! This is the opposite of common sense!

BOE was a fan of Chris Wright long before he became Energy Secretary, and I agree that the resumption of Santa Ynez Unit production is economically desirable for California and the nation. However, his comment implies that OS&T processing and tanker transport is a realistic option, and I do not believe that is the case.

John Smith and I have discussed Sable’s OS&T announcement on a number of occasions, and we don’t see a reasonable path forward for this option. In addition to the significantly higher capital and operational costs and the need to acquire and retrofit a suitable floating production, storage, and offloading vessel (FPSO), the legal and permitting challenges could be even more complex than for the pipeline option (as daunting as that may sound).

The OS&T option would require a revised development and production plan, and the associated environmental review (almost certainly an EIS).  An EIS would not favor this option, and the California Coastal Commission would surely rule that the OS&T/tanker alternative was inconsistent with their CZM plan. (Keep in mind that the SYU/OS&T production in the early 1980’s was approved prior to the passage of the Coastal Zone Management Act.) The Secretary of Commerce could overrule the Commission’s consistency determination, but legal objections to the override would likely delay the project for years and have a good chance of success.

Onshore processing and pipeline transportation using existing facilities is clearly the environmentally and economically preferable option. The only reasonable path forward for Sable or Exxon is to continue to pursue the onshore pipeline approvals. Federal attention should focus on jurisdiction over that pipeline, which is inherently an interstate line because it transports OCS production, and State actions that are blocking interstate commerce.

Finally, keep in mind that the SYU would still be producing today were it not for the entirely preventable pipeline rupture and the resulting Refugio oil spill. Plains Pipeline, the party responsible for this ugly incident, is no longer the owner, but that doesn’t comfort coastal residents; nor does it absolve the companies that transported their oil through the line from all responsibility.

The Refugio spill will be discussed further in an upcoming post.

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California Senate Bill 237, the compromise oil legislation supported by Gov. Newsom, Assembly Speaker Rivas, and Senate President McGuire, opens up Kern Co. drilling in exchange for pipeline safety measures that will doom the Santa Ynez Unit (SYU) if Sable fails to restart production by Jan. 1.

Particularly intriguing is the the list (below) of SB 237 supporters and opponents. The Western States Petroleum Assoc. (WSPA), is aligned with the unions for onshore drilling and against the SYU. Note that Exxon is a prominent WSPA members! Exxon assigned the SYU to Sable and is on the hook for massive decommissioning costs if production is not resumed. Perhaps Exxon has a backup plan for the SYU?

Also note that all of the environmental groups are aligned against SB 237. Compromise is not in their playbook.

John Smith’s highlighted summary of SB 237 is attached. Here is the provision that would seem to doom Sable:

Clarifies in the Coastal Act that development associated with the repair, reactivation, or maintenance of an oil pipeline that has been idled, inactive, or out of service for five years or more requires a new CDP, as provided.

REGISTERED SUPPORT / OPPOSITION:
Support
Associated Builders and Contractors of California
Berry Petroleum Company, LLC
California Conference of Carpenters
California Independent Petroleum Association
California Resources Corporation and Subsidiaries
California state Pipe Trades Council
California State Association of Electrical Workers
City of Bakersfield
Consumer Watchdog
County of Kern
State Building & Construction Trades Council of California
Western States Petroleum Association

Opposition
Asian Pacific Environmental Network Action
California Environmental Justice Alliance Action
California Environmental Voters
Campaign for a Safe and Healthy California

Center for Biological Diversity
Center on Race, Poverty & the Environment
Central California Environmental Justice Network
Clean Water Action
Climate First: Replacing Oil & Gas
Communities for a Better Environment
Earthjustice
Leadership Council for Justice and Accountability
Physicians for Social Responsibility Los Angeles

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Trinidad’s Prime Minister Kamla Persad Bissesar: “Trinidad will not wait for the end of any energy era,” she said. “Our principle is simple: investment goes where it is welcomed and stays where it is well treated.”

The PM of a country with an oil production history that predates the Drake well in Pennsylvania leaves no doubt about her support for deepwater development. Her candid and clear messaging is most refreshing.

Consistent with her policy guidance, T&T signed a Production Sharing Contract with Exxon for a massive deepwater tract (Block Trinidad and Tobago Ultra Deep 1, map below). Per Ms. Persad Bissessar:

“Today’s signing underscores our government’s commitment to strengthening national energy security and to unlocking the full value of our hydrocarbon resources through discipline, policy, competitive terms and trusted partnerships.”

The contract is an impressive achievement for Exxon, which was awarded the block non-competively through direct negotiation rather than bid rounds. The spectacular deepwater results offshore Guyana were a major selling point for Exxon, which promoted its leadership in understanding Caribbean offshore geology.

Although another Guyana is unlikely, the enormous lease block presents a great opportunity for Exxon. The consolidated block spans 7,765 square kilometers in the Eastern Tobago Basin in water depths exceeding 2,000 meters. By comparison, Trinidad and Tobago’s total surface area is about 5,128 square kilometers and a typical Gulf of America lease block is only 23 sq km. (Think about that! The size of US offshore lease blocks, which are the world’s smallest, needs to be reconsidered.)

Based on press reports, Exxon will carry out seismic acquisition within 12 months, followed by geological and geophysical studies, and drill up to 2 exploratory wells during the initial phases of the contract. (Reports differ as to whether one of those wells is mandatory, but presumably that won’t be an issue.)

Does this impressive deal reduce the likelihood that America’s largest oil company, which has essentially abandoned the Gulf of America except for its (fading?) carbon disposal ambitions, will participate in the upcoming Gulf lease sale? Politically, failure to participate would not seem to be very astute given the Administration’s promotion of domestic production and energy dominance.

Oil Now map
T&T – Exxon signing cermony

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As posted in January, most analysts predicted that Chevron and Hess would prevail. Now that the arbitration panel has ruled, Chevron’s acquisition of Hess can be completed.

The position of Exxon and its partner, Chinese govt owned CNOOC, never made much sense given that Chevron was not buying the Stabroek share, they were buying the company that holds that share.

The CNOOC position was rather hypocritical given that they acquired their share of Stabroek by buying Nexen, the company that owned it.

Not much attention has been paid to the importance of Chevron’s acquisition of Hess’s Gulf of America assets. The combined company will be the 3rd largest GoM oil producer (behind Shell and bp) and the second largest gas producer (behind only Shell). Hess acquired 20 GoA leases in Sale 261, ranking first in total high bids ($88 million) among all participants.

Lots more on Stabroek.

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Reuters and others report that zinc from a new Chevron well has contaminated oil production destined for an Exxon refinery via Shell’s Mars Pipeline System. Because contaminated crude may cause maintenance issues and reduces the quality of refined products, Exxon will not accept crude from the Mars system until the zinc issue has been resolved.

The Mars system delivers about 575,000 bopd raising concerns about supplies to Gulf Coast refineries. But fear not, DOE authorized the delivery of up to 1 million barrels of oil from the Strategic Petroleum Reserve to the Exxon’s Baton Rouge refinery.

(Ironically, yesterday’s post pointed to the importance of the SPR and questioned the decision to drastically reduce crude oil purchases. This zinc incident is likely to be minor, and Exxon will repay the SPR in kind. However, more serious regional, domestic, and international events could call for much greater SPR withdrawals.)

The above map shows Chevron platforms that connect with the Mars system at Port Fourchon.

Speculation/commentary:

  • The well/platform responsible for the zinc contamination has not been identified. Given that production is ramping up at Chevron’s Anchor facility, a new well on that platform may be the source of the zinc. Other Chevron platforms that connect to the Mars system are indicated in the diagram above.
  • Given that zinc in crude oil is rare, a well completion fluid containing zinc bromide may be the culprit.
  • Note the integration of offshore production streams, and the involvement of 3 industry super-majors. These companies are highly competitive, as evidenced by the Chevron-Exxon Stabroek dispute, but are also cooperative in producing, transporting, and refining oil and gas. However, they and other majors are restricted (rather illogically) from bidding jointly for leases.

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Exxon senior vice president Neil Chapman said he was confident that a three-member arbitration panel would rule in Exxon’s favor and determine it had a right-of-first-refusal to purchase Hess’ stake in a Guyana oil joint venture operated by Exxon.

Hess: “We remain confident that the arbitration will confirm the Stabroek right of first refusal does not apply to the merger.”

A ruling is expected in 2-3 months.

The China factor

Should the govt of Guyana have intervened?

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