News From The Oil Patch 3/19/2013
19 March 2013
The Kansas Supreme Court handed down a ruling Friday that will ripple through the Kansas oil patch, protecting producers and landowners alike. Northern Natural Gas Company, owned by the Warren Buffet conglomerate Berkshire Hathaway, hoped to show that natural gas that migrated outside the limits of Northern's natural gas storage facility near Pratt, Kansas still belonged to the company. Attorney Jim Goering, of the Foulston Siefkin law firm in Wichita, tells News From The Oil Patch a victory by Northern would have had a big impact on energy production across the state.
"It would have discouraged any production anywhere close to any of these gas storage fields, for fear that if they drilled a well, they might have to turn back all the revenues," Goering said. "And they would have paid royalties which can be very difficult to return. So, this is a good ruling for producers, and for production in Kansas of both oil and gas."
Goering argued the case before the high court on behalf of several firms fighting Northern, including L.D. Drilling of Great Bend, Kansas, and Nash Oil & Gas out of Pratt. Those companies are now entitled to revenues from gas produced before June of 2010. Another lawyer in the case estimates there is between six and eight million dollars currently being held in escrow because of the lawsuit. A judge in Pratt must still decide what will happen to revenues from natural gas produced after June, 2010.
Goering says the ruling is very important for Kansas landowners as well.
"Under Northern's theory, these gas storage companies could reach out for many miles." he says. "If landowners leased up their property, and were four or five miles from a storage field, they might later get sued and have to turn back every dollar they ever received in royalties, or the royalties might be suspended, literally, for years. This decision should put an end to that."
Operators of the NCRA refinery in McPherson announced a $327 million expansion at the facility starting this spring. CHS, which is buying out its co-owners, says by early 2016 the facility will increase capacity by 100,000 barrels per day. The expansion will occur at the same time as the ongoing project to build a replacement coker. The refinery is expected to continue with normal operations during both projects. CHS said the additional refined fuels produced will be equally divided between diesel and gasoline and will allow CHS to better match production with customer demand.
The Chinese national oil firm CNOOC will retain ownership but surrender operational control of 200 deepwater leases in the Gulf of Mexico, under terms to gain US approval of China's 15-billion dollar purchase of the Canadian energy giant Nexen. The Toronto Star newspaper reports CNOOC surrendered control of the assets to quell US national security concerns.
The southern portion of the Keystone XL pipeline from Oklahoma to the Texas Gulf Coast is roughly one half complete. The Associated Press reports that the project is on target to begin sending oil toward Gulf Coast refineries by the end of the year. TransCanada tells the AP that some 3,850 workers are currently involved on a 485-mile stretch from Cushing to the Gulf Coast.
Testimony began in a bench trial in New Orleans in which a judge will weigh the negligence and assign blame among BP and others in connection with the 2010 Gulf Oil Spill. A former BP engineering consultant testified against his former bosses, saying a culture of "every dollar counts" at BP led to the fatal Deepwater Horizon explosion and oil spill. A Transocean employee who survived the rig explosion testified that a subordinate killed in the blast was one of the workers who apparently missed signs the well was about to blow out. Randy Ezell says Jason Anderson, a "top notch" toolpusher, was among those, including BP, who misinterpreted the results of a crucial safety test. Another worker said a flurry of activity on the Deepwater Horizon hindered his ability to monitor the well for signs of trouble. Joseph Keith said he never saw any indications of a blowout before drilling mud started raining down on the rig floor. The CEO of TransOcean testified that his company played a role in botching a key safety test that might have prevented the blowout, but said BP ultimately was responsible.
A lawyer for Halliburton said it discovered cement samples possibly tied to the Gulf Oil Spill that weren't turned over to the Justice Department. Donald Godwin told a federal judge the company believes the material has no bearing on the ongoing trial to assign responsibility for the spill. But a plaintiffs' attorney countered that the samples are cement a Halliburton employee used for testing the Macondo well before the disaster.
Meanwhile, BP lost a bid to dismiss the issue of gross negligence. The Financial Times reports the ruling could trigger fines of as much as $17.6-billion. BP lawyer Andrew Langan asked for a partial ruling Monday, saying BP doesn't think there has been a finding of gross negligence. But the judge was quick to rebuff the move, saying he didn't see any point in arguing it.
Platts on Friday announced it is changing the way it assesses the Brent oil market in a bid to bolster the credibility of the benchmark, which is used to set oil prices globally. The Brent benchmark is based on a dwindling supply of four North Sea crude varieties. Critics say that leads to a smaller market that is prone to manipulation and can lead to higher global prices. Platts says it will apply quality premiums to two of those varieties starting in June.
Platts is disputing Congressman Paul Ryan's claims that the Obama Administration is wasting money on two solar energy projects funded by federal load guarantees. Ryan claims the SolarReserve Project in Nevada and the Mesquite Solar One project in Arisona were ill-fated ventures. But, Platts points out that the Mesquite project is in operation and has a 20-year power purchase agreement with Pacific Gas and Electric. SolarReserve has a 25-year agreement with Nevada Energy and is expected to begin producing electricity later this year.
Here's one you might not have seen coming. Valero Energy says it will begin exporting up to 90,000 barrels per day of Texas crude oil to its refinery in Canada. CEO Bill Klesse says they have a license to ship the crude oil to Quebec for one year. The decision has reignited an already tempestuous debate over pipelines in Canada, which has billions of barrels in production in the western provinces, but oil-starved refineries in the more populous eastern provinces.