Newsletter

Aug. 25, 1997
Confidence abounds in upstream oil and gas arenas. Canada's junior producers are benefiting from stronger relative crude prices and the outlook for increased natural gas pipeline export capacity to the U.S. (see related story, p. 29). On the downside, they face financing obstacles and increasing competition for rigs, seismic, and other services. Those are the views of Paul Gagnon, chairman of the Small Explorers & Producers Association of Canada (Sepac). His comments came during Sepac's

Confidence abounds in upstream oil and gas arenas.

Canada's junior producers are benefiting from stronger relative crude prices and the outlook for increased natural gas pipeline export capacity to the U.S. (see related story, p. 29).

On the downside, they face financing obstacles and increasing competition for rigs, seismic, and other services.

Those are the views of Paul Gagnon, chairman of the Small Explorers & Producers Association of Canada (Sepac).

His comments came during Sepac's second annual symposium to pitch investors and brokers about the potential of Canada's smaller producers.

Lenders are being tight-fisted despite generally favorable producer economics. Most want loans to be $10 million-plus, says Gagnon, because the paperwork to process a $5 million loan costs as much as one for $100 million.

One attraction of juniors for investors is that they often have low finding, development, and operating costs and a good chance for capital appreciation, says Gagnon. Juniors offer better growth rates because it is easier to double production of 100 b/d than production of 100,000 b/d.

On the global front, Enron forecasts plentiful and reasonably priced natural gas for the long term. It predicts global gas use will rise an average 3.4%/year through 2015 vs. overall energy consumption growth of 2.4%/year.

"We estimate the remaining recoverable natural gas resource base in North America to be about 2,600 tcf as of Jan. 1, 1997," said Enron Chairman Ken Lay. "This includes effects of the 21.8 tcf that were produced and replaced in the U.S. alone during 1996."

Offshore drilling continues to strengthen worldwide.

Global Marine says strong day rates resulted in a July Summary of Current Offshore Rig Economics (Score) of 65%-1.3% more than June's Score and 14.9% more than July 1996.

Southeast Asia showed the strongest month-to-month growth; West Africa, the North Sea, and the Gulf of Mexico also showed increases.

Shell reports its Auger and Mars TLPs in the deepwater Gulf of Mexico each have produced more than 100,000 b/d since mid-July. Mars was designed for this production rate, but outstanding performance caused Shell to debottleneck and expand Auger from its initial 46,000-b/d capacity.

To date, four more wells have been drilled from Auger, making a total of nine. Mars has 11 wells on line, with more slated for September start-up.

At the invitation of Sen. Frank Murkowski (R-Alas.), IPAA Chairman Lew Ward and 14 independent oil and gas executives are touring Alaska to scout opportunities.

George Yates, IPAA vice-chairman, said, "The time may be right for entrepreneurial independent companies to look at Alaska," often thought to be the sole domain of majors.

Amoco Corp. and Argentina's YPF have formed a limited partnership to operate their reserves in the Texas panhandle and western Oklahoma.

The Amarillo-based combine, Crescendo Resources, is designed to cut costs and increase profits.

A number of energy firms are eyeing Pemex's nitrogen EOR project in the Cantarell producing area (OGJ, Aug. 18, 1997, Newsletter).

Bidding for the project are BOC Group and a group of Dresser, Marathon, Nova, Praxair, and Bufete Industrial. A group of Shell, Enron, Mitsui, and Air Products & Chemicals also is evaluating the project.

Energy officials and industry representatives from seven countries will meet Sept. 8-10 in Montevideo to discuss natural gas and electric power integration and investment in the southern cone of South America.

Discussions will cover regional energy integration, current and future energy policies, and the potential for harmonious interregional regulatory frameworks. U.S., Argentina, Bolivia, Brazil, Chile, Paraguay, and Uruguay will participate.

State-owned Japan National Oil Corp. (JNOC) and private sector companies may develop an oil pipeline from Russia to Japan at a cost of $10 billion, reports Japan's Nihon Keizai Shimbun newspaper.

First step of a yet-to-be-formed joint venture is a 3-year feasibility study in conjunction with state firms in Russia and China. The possible line would extend from Irkutsk in Russia and traverse China and South Korea.

No details were available at OGJ presstime on pipeline specifics, line terminus, or system infrastructure.

BP, Marathon, and Exxon are expected to participate. Japanese companies that may take part include Tokyo Gas, Osaka Gas, Nippon Steel, Sumitomo, Nissho Iwai, Japan Petroleum Exploration (Japex), Teikoku Oil, Itochu, Marubeni, and Indonesian Petroleum Ltd. (Inpex).

The string of upstream development failures off Viet Nam lengthens. A Mobil group pulled out of the Thanh Long (Blue Dragon) project in the South China Sea, citing a lack of commercially viable reserves. Partners were Japex, Inpex, JNOC, and Nissho Iwai.

Big changes are ahead in India's upstream and downstream sectors.

India's government has granted greater operating freedom to nine leading state enterprises.

McKinsey & Co. recommends sweeping changes in the upstream activities of Oil & Natural Gas Commission, as part of a reorganization study.

Downstream, the country's first private-sector oil company, Mangalore Refinery & Petrochemicals, will issue a $100 million offering by first quarter 1998 to finance expansion of its refinery to 180,000 b/d from 60,000 b/d.

Meanwhile, Enron, advancing a major power in Maharashtra state, wants to become an integrated energy-supply company there.

"We're planning to bid for the 1,500-MW power project in Ennore," said Sanjay Bhatnagar, president/managing director of Dabhol Power Co., soon to take over as country head of Enron India International.

Tenders were floated recently by the Tamil Nadu state government. Projects will be developed as joint ventures with Indian and foreign partners.

Meanwhile, Enron India Natural Gas is expected to soon finalize sale of surplus LNG from Qatar to Indian power and fertilizer units.

An official says sale of LNG, left over after use in Enron's power plant at Dabhol, would be restricted to Gujarat and Maharashtra states.

In 1995, Enron signed an agreement with Qatar General Petroleum Corp. to produce 5 million metric tons/year of LNG beginning in 2001, proposing to ship 2 million tons/year to feed its 2,450-MW Dabhol project.

But last September, Enron-which had intended to supply the rest of the Qatari LNG to Israel-lost an expected supply contract and instead shifted all of the Qatari supplies to India.

Petrochemical investments by Gulf Cooperation Council countries will total $33 billion by 2000, says Gulf Industrial Consultants.

Petrochemical output in the region will total 19.5 million metric tons vs. current output of 7 million tons/year.

On the negative side for Asia's downstream sector, Moody's Investors Service is concerned about South Korea's light products and petrochemical demand. An economic downturn and declining demand in Asia could augur a loose market, given planned expansions, and may erode refining/petrochemical margins.

Two major oil companies have retaliated against Greenpeace after the pressure group stepped up its campaign to stop oil exploration in the North Atlantic and arctic Alaska by staging blockades against ARCO and BP.

At OGJ presstime, BP disclosed it has decided to release the frozen bank accounts of Greenpeace and three activists and to suspend its £1.4 million ($2.24 million) compensation claim against the group (see Watching the World, p. 40). BP said that, following the court hearing at which Greenpeace was ordered not to interfere with BP's lawful operations in developing Foinaven and Schiehallion fields, it held "clarifying discussions" with the group.

"We are satisfied with the outcome of our discussions with Greenpeace," said BP. "These discussions and the continuance of the existing court orders should allow us to get on with developing Foinaven, free from risk of unlawful interference in the field or with the vessels serving it."

In a 6-day protest in Alaska's Prudhoe Bay, 28 Greenpeace activists blocked passage of ARCO's Glomar Beaufort Sea 1 drilling rig on its way to Camden Bay. A Los Angeles court had turned down Greenpeace's earlier request for a restraining order against ARCO.

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