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CNOOC shuts in Lufeng fields

Diver lost life in initial effort to repair leak on Nanhai Shengkai FSO that has affected four fields

CHINA'S CNOOC Ltd has been forced to shut in four fields in the Pearl River Mouth basin following a serious leak caused by a sea valve during repair work on the Nanhai Shengkai floating storage and offloading vessel.

Initial efforts to stop the leak claimed the life of one diver. However, no oil spill was reported, sources said, and CNOOC is now studying the impact of the incident and is looking at ways to resume production from the affected fields.

Although CNOOC relies on the four fields — Lufeng 3-1, Lufeng 13-2, Lufeng 13-2B and Lufeng 7-2 , — for a significant contribution to its oil and gas output in the Pearl River Mouth basin in the eastern part of the South China Sea, well-placed sources do not see much impact on the company's overall production target for 2017 set early this year.

CNOOC aims to produce between 450 million and 460 million barrels of oil equivalent this year, with that total having included a 10 million boe buffer. 

The Pearl River Mouth basin is a relatively modest production area: last year the whole region accounted for 78.3 million boe of production, or about 25% of CNOOC's total offshore production.

Meanwhile, the Shengkai floater is understood to have been towed to an unnamed mooring point in the South China Sea before being moved to Yiulian Shipyard for repairs. Yiulian Shipyard could not be reached for comment on the vessel's status. 

However, sources said CNOOC has not yet decided what to do with the 24-year-old floater. “It doesn’t make economic sense to repair it and maybe class won’t approve its continued service,” said one.

Shengkai was converted from the oil tanker Sea Queen in 1992 at Singapore’s Sembawang Shipyard. 

It underwent a major overhaul at Yiulian Shipyard in Shenzhen in 2012, during which time CNOOC used the Nanhai Kaituo FPSO as a makeshift replacement at the Lufeng fields.

The four affected oilfields all lie in waters up to 146 metres deep and are normally tied back to Shengkai, which offloads oil to shuttle tankers for export.

CNOOC has responded quickly to the accident, studying multiple options to replace the faulty floater and get the fields back in action.

The company is said to have approached Dutch floater player Bluewater about using the Munin FPSO, though that might be an expensive option — it has 60,000 barrels per day of processing capacity, while oil from the Lufeng fields is already processed at the Lufeng 13-1 central equipment platform.

However, sources said CNOOC also has a longer term plan for the Munin if leased, which could see it deployed for developing its operated Liuhua 4-2 and Liuhua 11-1 project in the Pearl River Mouth region once a long-term replacement for the Shengkai takes over.

The dayrate for leasing the Munin could be around $130,000, although that could not be independently confirmed.

Built in 1996 by Samsung Heavy Industries in South Korea, Munin operated in China for Statoil at the Lufeng 22-1 field up to its decommissioning in 2009. It then worked at the Xijiang field in the Pearl River Mouth basin on a short-term contract.

The dynamically positioned FPSO was towed from Batam Indonesia to Labuan Malaysia for stacking last year.

Another option for CNOOC could be to charter the Dalian Developer drillship built by Cosco Shipbuilding Heavy Industry’s Dalian facility that was abandoned by owner Dalian Deepwater Developer in 2013. 

Sources said CNOOC Energy & Technology & Service (Enertech), which managed Shengkai’s registration, has approached Dalian about a possible lease, though they suggested the rate offered was considered too low for Cosco to accept once required retooling work was taken into account.

Dalian Developer has crude storage capacity of 1 million barrels and can operate in water depths of 10,000 feet. It is available for lease or sale.

A third option is to call back the Nanhai Kaituo to serve at the fields as it did in 2012 during the Shengkai's overhaul. Kaituo was retired in 2010, but could temporarily replace Shengkai after minor maintenance. 

CNOOC has had plans to use Kaituo as a swing floater to maintain production from fields in the South China Sea when its own floaters undergo maintenance or are being repaired after damage caused by typhoons. 

The 1970-built Kaituo has been anchored at Longxue Shipyard, in Guangzhou city, since 2010 after it was decommissioned from the Xijiang 24-3 field.

CNOOC is yet to publicly announce the shut-in of the Lufeng fields, but US independent Newfield Exploration confirmed last week that the floater incident had led it to reduce its production guidance for the rest of this year by 5000 bpd. Newfield operates one of the four fields, Lufeng 7-2.

"Due to the uncertainties surrounding the timing of repairs, Newfield has removed from its guidance approximately 5000 bpd net from expected future liftings in the second half of 2017," the company said.

Newfield's operated Lufeng 7-2 field, also known as the Pearl field, is about 16 kilometres from where the Shengkai was operating.

Newfield chief executive Lee Boothby said he hoped to provide further information on the US company's production later in the year. 

"Although we were hopeful that these repairs will be completed timely, we took a cautious stance and removed all additional liftings from our forecast for the remainder of the year," he said.