There are faint signs of progress on reducing supply to bolster oil prices.
Venezuela will achieve 100% compliance with its promised production cuts at the beginning of this year, pledges Deputy Energy and Mines Minister Dolores Dobarro.
On Jan. 1, Venezuela's output was set to drop by 80,000-100,000 b/d, said Dobarro. Her announcement follows President-elect Hugo Ch vez's vow to comply fully with promised cuts and to review Venezuela's pledges in March with a view to extending them throughout 1999 (OGJ, Dec. 28, 1998, Newsletter).
After announcing his pending resignation, effective Feb. 1 (see story, p. 28), Pdvsa Pres. Luis Giusti said, "There is no willingness, as in the past, to remove large volumes from the market." He added, "Inventories are high, and until (they) are lowered, prices are going to remain low. However, even after inventories (return to) normal levels, what we are talking about is a different market. More and more, we are seeing greater competition, we are seeing alliances among companies, and the evolution of technology that allows good profit margins with low prices (see related story, p. 18)."
Continued low oil prices are playing an important role in the acceleration of industry mergers and acquisitions, says Randall & Dewey (see related story, p. 23).
"Although the prevailing expectation is that oil prices will rebound to the $18-20 level, it will not be this year," said the analyst. "Based on the results of our own industry price poll, we will not see $20/bbl for the next 5 years."
According to Randall & Dewey, "With traditional sources of capital largely constrained, lenders becoming increasingly impatient with underperforming loans, and in a market lacking depth in all-cash buyers, the overleveraged, nonperforming sector is forced to explore strategic alternatives. (This creates) an opportunity-rich environment for those with cash, strong balance sheets, and an appealing combination of imagination and workable solutions."
The analyst doesn't expect the pace of M&A activity to begin slowing any time soon: "Absent a cold winter and robust natural gas prices, capital markets are likely to remain constrained."
Although it was not enough to turn the U.S.'s so-far mild winter into a cold one, an arctic front was causing natural gas shortages in the northwestern U.S. late last month.
The fuel shortfall prompted the declaration of a Stage-2 Emergency in California, triggering a reduction in power demand on the state's transmission system. Transmission lines were backed up as the warmer Southwest states sent excess power to Calfiornia.
Russia's lower house, the Duma, has passed legislation enabling production-sharing agreements (PSAs) and thereby promising to change the landscape of oil industry investments in Russia. President Boris Yeltsin has indicated that he will approve the PSA amendments.
The legislation changes 12 laws to ensure their consistency with the PSA law, thus preventing legal challenges from arising after oil companies have made investments. Next to be finalized are the so-called nominative acts-the detailed rules on how the PSAs will work. These are as important as the PSA law and are expected to take most of this year to be completed.
India is scouting for exploration opportunities outside its borders to supplement indigenous oil supplies. The effort is being spearheaded by Oil & Natural Gas Corp.'s foreign operating unit, ONGC Videsh.
The need to secure more foreign crude supplies has become imperative, in view of the increased crude oil imports that would be required to feed the country's planned investments in refining capacity (OGJ, Dec. 21, 1998, p. 28).
India's self-sufficiency in oil has been declining for 15 years. The supply/demand gap is 60% and is expected to reach 70% by 2005.
There has been no significant addition to India's recoverable reserves through new finds since 1989. At the present rate of demand growth and in the absence of new finds, India may have no domestic oil production in 20 years, former ONGC Chairman S.P. Wahi warned the Petroleum Ministry.
Argentina's Bridas has said it would not wait for peace to start laying the Afghan portion of a gas export pipeline from Turkmenistan to Pakistan, if awarded the contract. Bridas's rival for the project is CentGas, a consortium that, until recently, was led by Unocal (OGJ, Dec. 14, 1998, Newsletter).
Bridas official Muhammad Omar Kakar told reporters in Kabul that the company would not delay work on the 743-km Afghan stretch of the planned pipeline: "What I can tell you is that we are in a position to start the work on the project immediately after the Taliban sign an agreement with us."
For 3 years, Bridas has pursued the contract for the $1.9 billion, 1,271-km pipeline project from the Daulatabad gas fields in southern Turkmenistan to Multan, Pakistan. CentGas signed agreements with Turkmenistan to build the 1.9 bcfd pipeline, then delayed the work because of factional fighting in Afghanistan.
"We have no conditions of any sort as such," said Kakar. "The Taliban know this, and we don't need to raise money for the project from financial institutions. Bridas has money to start the project."
Chevron is making a major commitment to its upstream operations in China. The company plans to invest $60 million to drill nine wildcats there, making China the target of "Chevron's most significant wildcat drilling program in the world," it said. The company's planned projects include: further E&P in the Huizhou oil fields area, at least nine exploration wells in existing contract areas (South China Sea, Bohai Sea, and Sheng* field onshore), and "cooperative projects" in other existing oil and gas fields. Chevron says it is also eager to evaluate the potential in areas such as Bangladesh, Thailand, and the Philippines.
Conflicting information has arisen regarding a deal to implement a natural gas export pipeline from Indonesia to Singapore.
In late December, local press reports said Singapore consortium Sembgas and Indonesia's Pertamina had hammered out the details of a preliminary agreement they signed in July (OGJ, Aug. 3, 1998, p. 24). Among the new arrangements were: a payment guarantee by Sembgas; a supply agreement with the West Natuna Sea operators, led by Conoco Indonesia; and offtake agreements with Singapore power and petrochemical plants.
But Sembgas leader Sembawang says the announcement was premature and that several issues in the $8 billion deal are still under negotiation: "Until all parties have fully and satisfactorily resolved these issues, the general sales agreement cannot be finalized and signed."
Gas flow via the 640-km subsea pipeline is expected to begin by April 2001 to support the expansion of Singapore's Tuas power plant, which is to start up a second train that month. With construction expected to take 22-24 months, Sembgas will have to hurry to finalize the deal and let construction contracts.
An agreement touted as a model for the industry has been reached to address discrimination complaints at Fina's Port Arthur, Tex., refinery.
As part of a settlement of complaints alleging racial and ethnic discrimination, Fina, the Equal Employment Opportunity Commission (EEOC), and the Oil, Chemical, & Atomic Workers union devised a program to ensure equal opportunity in training and promotion. The program provides for standardization of job training, qualification, and promotion procedures.
It also includes an independent ombudsman to help employees raise and address concerns about all forms of discrimination. Fina will provide diversity training for all employees and implement a "zero tolerance" antidiscrimination policy. The settlement provides cash payments to aggrieved workers who agree not to pursue litigation and a means by which employees who believe they were passed over for promotion can apply for lost wages.
Reuben Guttman, a counsel for the employees, said, "The changesellipse(were) achieved through constructive collaboration between Fina, the EEOC, employees, and their union. The result should send a signal to employersellipsethat the time is ripe to approach issues of discrimination through a consensual and open dialogue that involves third parties and the EEOC."
While trading of emissions permits is still a contentious issue in the global warming debate, BP has taken the lead by trading permits internally.
Under a pilot trading scheme, BP's Foinaven field business unit bought CO2 tradable permits from the company's Forties Pipeline System business unit. BP says the system offers business units a cost-effective mechanism for achieving CO2 emissions cuts targets. Each business unit taking part in the pilot was allocated a permit for 1999-2003. The Foinaven team reckons the planned use of a second drilling rig in the field in 1999 would push it above its CO2 emissions quota for the year. Twelve business units are taking part in the pilot scheme, including E&P, refining, and chemicals operations around the world.
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