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Posts Tagged ‘Exxon’

Santa Ynez Unit: 500+ million barrels, 3 major platforms, and zero production since 2015. Is production restart a “pipe dream?”

Posted in California, Offshore Energy - General, pipelines, tagged , , , , , on August 26, 2024| 2 Comments »

Earlier this year John Smith correctly commented that a Santa Ynez Unit (SYU) production restart in 2024 was not possible. Last month, BOE reported on the regulatory “catch 22” facing Sable Offshore, the current operator under an agreement with Exxon.

An assessment prepared for Hunterbrook Capital draws the same conclusions regarding the prospects for production, calling the restart “a pipe dream” (presumably the pun was intended given the pipeline permitting quagmire). Hunterbrook’s chart (pasted below) illustrates the regulatory labyrinth facing Sable.

Hunterbrook has also flagged Sable’s ability to continue as a “going concern.” That may be a valid concern, but Sable’s success is very much in Exxon’s best interest. Exxon must have evaluated Sable and been comfortable with their management. Otherwise, they wouldn’t have made the deal.

Does Exxon want the massive SYU headache to revert back to their portfolio, as provided for in their agreement with Sable, if production doesn’t restart by January 1, 2026? Unless Exxon thinks they have a better option than Sable, they will presumably be flexible about the deadline.

Meanwhile, a judge denied the temporary restraining order requested by Sable to prohibit release of redacted portions of their oil spill contingency plan. Sable had argued that revealing “trade secrets” and specific locations and vulnerabilities of the pipelines could pose a “threat to national security.”

The Santa Barbara Independent also alludes to “pending litigation with Santa Barbara County over automatic shut-off valve permits.” Although litigation would seem likely if the County continues to deny permits for valves required by the Fire Marshall, BOE was unable to confirm any such litigation plans.

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Update on the high potential Orphan Basin well

Posted in Canada, drilling, Offshore Energy - General, tagged , , , , , on August 23, 2024| Leave a Comment »

To find the sole exploratory well being drilled in the vast North American Atlantic, you have to exit “wind-only” US waters, head NE to St. John’s, NL (advancing your watch by 1.5 hours 😉), and transit another 317 miles NE to the Stena DrillMAX working for Exxon in the Orphan Basin.

The latest (8/20/2024) CNLOPB report (below) is that operations are ongoing. The well was spudded 3 months ago. That is about all they can disclose without compromising confidentiality. Even seemingly innocuous information like the current and projected well depth provides the opportunity to speculate about geologic conditions and current well activities.

We can assume that there have been no safety or environmental incidents to date, because the CNLOPB does a good job of posting such information in a timely manner.

Previous posts on this well

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Guyana Stabroek dispute: Exxon claims the Chevron-Hess deal is “an asset acquisition disguised as a merger.”

Posted in Guyana, Offshore Energy - General, tagged , , , , , , , , on August 22, 2024| Leave a Comment »

Reuters has published an interesting article on the Exxon/CNOOC vs. Chevron/Hess dispute scheduled for arbitration next year in Paris. According to Reuters (emphasis added):

“Getting the panel to consider the appraised value is central to Exxon’s claim that the deal is an asset acquisition disguised as a merger. Exxon believes the Guyana asset is so valuable that the merger would trigger a change of control and give Exxon and CNOOC a right of first refusal to the asset sale, the people said.“

The Exxon argument implies that Hess’s only major asset is its share of Stabroek, which is hardly the case. Hess’s 30% Stabroek share is without question an important asset with great long-term potential, but Hess is also a major player elsewhere, most notably in the Bakken formation in North Dakota and the Gulf of Mexico. Implying that Hess was a single asset acquisition is thus misleading:

  • In Q4 of 2023, Hess produced 194,000 boepd in the Bakken formation vs. a Stabroek share of 128,000 bopd.
  • In 2023, Hess produced 20 million barrels of oil in the GoM and 40 bcf of gas making them the 8th highest oil producer and 7th highest gas producer.
  • Hess acquired 20 GoM leases in Sale 261, ranking first in total high bids ($88 million) among all participants.
  • Chevron and Hess GoM assets have significant potential for synergy. The combined company would be the 3rd largest GoM oil producer (behind Shell and bp) and the second largest gas producer (behind only Shell).

Exxon’s ally in this dispute is state owned China National Offshore Oil Corporation. CNOOC acquired their 25% Stabroek share when they purchased Nexen, a Canadian company (sound familiar?). Both the Canadian and US governments had reservations about this acquisition and nearly nixed the deal.

This dispute will continue to smolder given the delay in the arbitration hearings until May 2025. As previously mentioned, I believe the Government of Guyana should have intervened. I’m all for companies settling their disputes privately, but this dispute is over Guyanese resources, and the protracted delay could have implications for Guyana.

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Exxon-Chevron-Hess-CNOOC Stabroek dispute drags on

Posted in Guyana, Offshore Energy - General, tagged , , , , , , on August 2, 2024| Leave a Comment »

An International Chamber of Commerce panel has set a May 2025 date for the hearing on the dispute over Chevron’s acquisition of Hess’s share of Guyana’s Stabroek field. This is a massive delay considering the impact of this arbitration case on Chevron’s purchase of Hess.

The matter also has significant international intrigue given that (1) Exxon’s Stabroek partner is state-owned China National Offshore Oil Corp, which ironically acquired their 25% Stabroek share when they purchased Nexen (sound familiar?), and (2) Chevron continues to operate in neighboring Venezuela where the Maduro regime has claimed much of Guyana’s offshore resources.

As noted in a previous post, the Exxon/CNOOC position seems to be a stretch. Chevron did not buy the Stabroek share; they bought the company that holds that share. Hess is to be part of Chevron and there would be no change of control from the standpoint of the partnership. The panel will decide, but given the May 2025 hearing date, we probably won’t know the outcome for a year.

The Guyanese government has not taken a position in this dispute, but in my opinion, there are reasons for them to be concerned. Stabroek is Guyana’s offshore gem, their most important economic asset. The dispute has to affect teamwork and communication.

From safety, environmental, and production standpoints, do you want feuding partners managing such an important national asset? Those are Guyanese resources that the Stabroek partners are licensed to produce. I would have liked to have seen the government tell them to get this resolved in 30 days or we’ll resolve it for them.

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2nd high stakes exploration well spudded offshore Newfoundland

Posted in Canada, drilling, Offshore Energy - General, tagged , , , , , , , on July 24, 2024| Leave a Comment »

Odfjell Hercules

Per the CNLOPB weekly activities report, Equinor spudded the important Sitka C-02 well in the Flemish Pass area on July 10, 2024. This well will help clarify the resource potential in the Bay du Nord project area with the goal of better defining development plans.

Meanwhile, operations on Exxon’s important Persephone well in the Orphan Basin have now been ongoing for 2 months. Some type of announcement by Exxon is expected after operations are completed and the well has been plugged.

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Caught in the middle – another Santa Ynez Unit “Catch 22”

Posted in California, energy policy, Offshore Energy - General, tagged , , , , , , on July 18, 2024| Leave a Comment »

caught in the middle?

Earlier this month we awarded a Chutzpah Award to groups that helped block every attempt to resume production in the Santa Ynez Unit and are now suing to terminate the leases for non-production. 

We now learn that the State Fire Marshall has rejected the resumption of production because Sable, the current operator, is not installing automatic shutdown valves on the oil pipeline. The catch is that Sable was denied permits needed to install the valves. So, on the one hand the Fire Marshall is requiring shutdown valves (a reasonable requirement), and on the other hand the County is prohibiting the installation of those valves!

According to the Fire Marshall’s office, this is the first time a company has been denied permits to install valves mandated by the State – yet another dubious distinction for the Santa Ynez Unit.

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Chutzpah Award winner! 🏆

Posted in California, energy policy, Offshore Energy - General, Regulation, Uncategorized, tagged , , , , , on July 2, 2024| Leave a Comment »

Followers of the US OCS oil and gas program have observed some impressive chutzpah over the years, but a new law suit challenging the extension of Santa Ynez Unit leases raises the bar.

Groups that helped block every attempt to resume production in the Santa Ynez Unit are now suing to terminate the leases for non-production. Brilliant!🥇

“Without these extensions, each of the leases would have expired and ExxonMobil would have been required to permanently cease its oil and gas operations, plug its wells, and decommission its other infrastructure.” See the full text of the law suit.

More posts on the Santa Ynez Unit saga.

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Santa Ynez Unit update: production in 2024 unlikely

Posted in California, Offshore Energy - General, tagged , , , , on June 24, 2024| Leave a Comment »

Sable Offshore is still planning to resume Santa Ynez Unit production by October. However, according to John Smith, production in 2024 is not a possibility. The following permitting gauntlet remains:

  • State Fire Marshal permit for onshore pipeline.
  • Santa Barbara Planning and Development permit.
  • California State Lands Commission decision on the pipeline right of ways (ROWs) in state waters. (Those ROWs had expired.)
  • Transfer of leases to Sable – Environmental groups, the California Coastal Commission and/or other parties could file suit challenging the transfer of the leases to Sable.

According to John, the question is not whether production will resume in 2024, but whether it will ever resume. And John reminds us that as of 1/1/2026, the SYU and all of the headaches revert to Exxon. See the SYU overview below:

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Gulf of Mexico carbon disposal: No news is good news!

Posted in CCS, climate, energy policy, Gulf of Mexico, Offshore Energy - General, tagged , , , , , , , on June 18, 2024| Leave a Comment »

At Sale 261, Repsol was the sole bidder for 36 nearshore Texas tracts in the Mustang Island and Matagorda Island areas (red blocks at the western end of the map above). Exxon acquired 163 nearshore Texas tracts (blue in map above) at Sales 257 (94) and 259 (69).
  • The 199 oil and gas leases that were wrongfully acquired for carbon disposal purposes remain idle with the government collecting rental payments at the rate of $10/acre/yr ($7 for Sale 257 leases). Collectively, this amounts to approximately $10 million/yr.
  • Presumably, the lessees cannot claim CCS tax credits for their bonus and rental payments.
  • The primary term for these leases is only 5 years, and the clock is ticking. The 94 oil and gas leases acquired by Exxon at Sale 257 for carbon disposal purposes are approaching the end of their second year. They would be almost a year older if litigation hadn’t delayed the issuance of Sale 257 leases (break for Exxon?).
  • No exploration plans have been filed for any of these leases. Presumably Exxon and Repsol do not intend to drill any wells unless the leases are converted to authorize carbon disposal.
  • The “Infrastructure Bill,” signed 2 days before Sale 257, required the Secretary of the Interior to promulgate regulations not later than one year after the date of enactment (11/15/2021). That deadline has long passed.
  • The delay in the regulations is understandable given the complex lease management, operational, and environmental issues.
  • Like the practices and operations they are intended to enable, the regulations are certain to be divisive. Neither the offshore industry nor the environmental community are of one mind on these issues, particularly with regard to the acquisition of oil and gas leases for carbon disposal purposes.
  • Energy Intelligence suggests that final carbon disposal regulations will be promulgated this year. This is highly unlikely, given that a proposed rule must first be published for public comment.
  • Interior could seek to demonstrate “good cause” for a direct final or interim final rule. However, such an attempt at corner-cutting is unlikely, especially given the controversy associated with carbon disposal.
  • Publication of a proposed rule prior to the election is unlikely – too controversial.
  • Presumably, the regulations will establish a competitive process for the conversion of any oil and gas leases.
  • The leases that were wrongfully acquired at Sales 257, 259, and 261 should not be extended for any period of time, even if their expiration date approaches before a competitive process is established.

Closing comment: “Sequestration” is a euphemism that is being incorrectly applied to soften the reality of disposing carbon beneath the Gulf of Mexico. Sequestration implies storage for later use and that is clearly not the intent. Because carbon disposal is arguably dumping, a special exemption from the Marine Protection, Research, and Sanctuaries (Ocean Dumping) Act of 1972 had to be added to the Infrastructure Bill.

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Stena DrillMAX onsite in Orphan Basin; govt resource assessment report explains why

Posted in Canada, drilling, Offshore Energy - General, tagged , , , , on May 23, 2024| Leave a Comment »

Per rig tracker data, the Stena DrillMAX has been on location at Exxon’s Orphan Basin wellsite since Sunday (19 May). The site is 317 miles (510 km) NE of St. John’s in Block 1169 (~3000 m water depth).

Per this very good resource assessment report for the Govt. of Newfoundland and Labrador, “the Orphan Basin area demonstrates a potentially prolific petroleum system with four main plays (reservoirs and associated seals) sourced by various source rocks (Upper Jurassic, Cretaceous, and Paleogene).“

Unrisked resource estimates (theoretical pending confirmation by drilling) at the 90, 50, and 10% probability levels for the Orphan Basin blocks offered for licensing in Nov. 2022:

Taking into account the risks of the geologic model not accurately reflecting the reservoir, seal, charging, and trap components of the petroleum system, the probability of finding 13.5 billion drops to 16% (see plot below). This is still a high probability for a massive wildcat discovery.

This is why you move a state-of-the-art drillship thousands of miles to drill a single exploratory well at a remote location in the North Atlantic. The most likely outcome is negative or inconclusive findings, but the potential for such a major discovery justifies the investment.

The PGOS curve quantifies the probability of success in finding the identified volume of resources in the new Orphan Basin blocks (e.g. there is a 34% chance of finding 4.7 billion BOE and a 16% chance of finding 13.5 billion BOE).

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