OGJ Newsletter

U.S. INDUSTRY SCOREBOARD 4/12 [43,644 bytes]

Listen for sighs of relief throughout the oil industry now that the price of Brent crude oil futures has pushed above $15/bbl for the first time since May 1998. While few expect the improvement to last long, it appears the relative boom stems from last month's decision by OPEC and some non-OPEC nations to cut production by a further 2.1 million b/d (OGJ, Mar. 29, 1999, p. 18).

At closing Apr. 6, prompt-delivery Brent stood at $14.49/bbl, while May-delivery Brent was $15.05/bbl, having reached a short-term peak of $15.28/bbl on Mar. 31. By closing Apr. 7, however, prompt Brent had fallen to $14.17 and May Brent to $14.71.

Meanwhile, EIA predicts that oil and gasoline prices will remain on an upward track through 2000 (see story, p. 35). The average cost to U.S. refiners for imported oil will be $15-16/bbl by December 1999, says EIA, translating to about $18/bbl for WTI. U.S. gasoline prices are expected to average $1.13/gal (regular self-serve) this summer. But natural gas is another story. EIA projects U.S. natural gas spot prices will remain under $2/Mcf until the beginning of the next heating season, unless there is an unusually hot summer: "High levels of underground storage are expected to keep a lid on natural gas wellhead prices. Working gas in storage at the end of the heating season (Mar. 31) was an estimated 1.354 tcf, which would be the highest end-of-March level since 1992. In 2000, gas prices are projected to rise above $2/Mcf, on average, if normal or near-normal winter temperatures occur."

Higher oil prices have driven two companies to restart production at an idle California heavy oil field. A new operating agreement has been reached between independent producer Jim Cannon CS and technology provider COX Technologies regarding Chico-Martinez field. The field remained shut in all of last year, and produced only marginal volumes of oil in 1997.

"The timely decision to bring the field, located near Bakersfield, back into operation is based on the recent significant oil price increase," said COX, which has a 75% working interest in the project; Jim Cannon has operating rights for 3 years, with a 25% working interest. Production is expected to reach 1,000 b/d.

Elf has revealed that it will undertake development of Iran's Balal oil field, together with Canada's Bow Valley Energy. Bow Valley has been trying to win this buy-back contract for more than 2 years, and has linked with a succession of partners to do so. Most recently, it reached an agreement with London's Premier Oil to undertake Balal development (OGJ, Mar. 1, 1999, Newsletter), but Premier backed out, leaving a hole that Elf quickly filled.

Elf will be operator of Balal, with an 85% interest. Project costs are estimated at $300 million. First oil of about 40,000 b/d is slated for 2001.

The U.N. has lifted economic sanctions against Libya after the country surrendered two of its citizens accused in the Dec. 21, 1988, bombing of a PanAm jetliner over Lockerbie, Scotland. The move is expected to trigger a rush of foreign investment in the country's oil industry. Among European firms likely to benefit are ENI, OMV, Repsol, and Wintershall, which collectively produce about a third of Libya's 1.23 million b/d of oil. U.K. independents also are well placed to exploit an end to sanctions in Libya, says Geneva's Petroconsultants.

Libya is already in talks to award 14 new exploration blocks. U.N. sanctions against Libya were imposed 7 years ago to block air travel and sales of arms and oil equipment to Libya. The U.S. State Department says sanctions blocking U.S. firms from doing business with Libya, some of which date to 1982, will continue for now (see editorial, p. 21, and Watching Government, p. 37).

Antitrust concerns are suddenly topical in formerly sheltered oil and gas sectors.

Argentina has fined oil company YPF 109.6 million pesos for alleged unfair trading practices in the LPG market, the second such antitrust move against a state-owned or former state oil firm in South America in recent weeks (see related story on Brazil's Petrobras, p. 30).

The Argentine government says YPF abused its dominant market position to raise domestic LPG prices above that charged for LPG exports. It also condemned certain YPF contract terms, including one that prevents reimportation of exported LPG. YPF has appealed the fine, saying its stake in Argentina's wholesale LPG market fell from 50% in 1993 to 34% in 1997, and that its retail market share is even lower, at about 15%.

Meanwhile, Japan's Fair Trade Commission has raided the offices of 11 oil companies suspected of violating antimonopoly laws. FTC says the firms may have fixed winners of contracts to deliver jet fuel for the Defense Agency.

The Board of Audit questioned the agency's jet fuel procurement practices late last year, saying it sets procurement prices at the high levels sought by major oil distributors. The 11 firms are: Nippon Oil, Cosmo Oil, Idemitsu Kosan, Mitsubishi Oil, Japan Energy Corp., General Sekiyu, Mobil Sekiyu, Showa Shell Sekiyu, Esso Sekiyu, Kygnus Sekiyu, and Kyushu Oil.

Consolidation and rationalization are beginning to take hold in Asia's refining sector (OGJ, Mar. 1, 1999, p. 23). The newly merged Nippon Mitsubishi Oil will halt oil processing at its 45,000 b/d Kawasaki refinery this fall. It attributed the shutdown to the refinery's proximity to a 385,000 b/d Nippon Mitsubishi refinery in Yokohama. The Kawasaki plant will continue to produce lubricants and certain other products, however.

The decision follows the closure of Showa Shell Sekiyu's 40,000 b/d refinery in Niigata Prefecture at the end of March.

In South Korea, Hyundai Oil Refinery has finalized a $2.45 billion deal to take a stake in Hanwha Energy and acquire its sales operation, Hanwha Energy Plaza. Hyundai's refining arm will acquire from Hanwha Group a 38.82% stake in Hanwha Energy and 100% of Hanwha Energy Plaza. Hyundai Oil also will take over about 3 trillion won worth of combined debt. Hanwha Energy's creditors recently agreed to convert 1.22 trillion won of Hanwha's short-term debt to long-term loans-a key condition of the deal. The acquisition did not include Hanwha's power unit, which Hanwha Group plans to sell.

Hyundai has also said it is to resume talks with Abu Dhabi investment group International Petroleum Investment Co. (IPIC) on IPIC taking a 50% stake in Hyundai Oil for an estimated $500 million.

A proposed pipeline to ship gas from Russia's Far East to Japan will not be viable unless Japan establishes an internal distribution network as a downstream anchor, Arlon Tussing, president of consulting firm ARTA Inc., told a recent conference in Sapporo, Japan, on the viability of a Sakhalin-to-Japan gas pipeline. In Japan, he says, action still lags talk about linking together 20 isolated LNG terminals with gas markets in a move aimed at reducing delivered gas prices-now the world's highest-by 50-70% (OGJ, July 6, 1998, p. 27).

Tussing tells OGJ that analysts and operators at the meeting agreed on the need: for an early agreement by the Sakhalin E&P firms on a single transport plan, so as to harness economies of scale; to aggregate local demand in northern Japan to form a critical mass; and for regulatory reform in Japan, including right-of-way eminent domain law. The conference revealed a dramatic shift in promotion of pipeline projects away from reliance on Japanese industrial giants and the national government, Tussing contends.

Attendees included representatives of prefectural and local governments, non-governmental organizations, and medium-size businesses from Japan's Hokkaido Island, including prospective contractors and potential investors.

A new twist has arisen in the story of the ill-fated merger proposal between London independents Lasmo and Enterprise Oil (OGJ, Apr. 5, 1999, Newsletter). Both companies reportedly have approached another London independent, Monument Oil & Gas, with a view to a potential takeover, although no firm offers had been made at presstime.

Lasmo and Enterprise have been bitter rivals since Enterprise tried-and failed-to take over Lasmo in 1994, but were brought together under friendlier circumstances by recent hard times (OGJ, May 9, 1994, p. 31).

Petro-Canada plans a "staged exit" from conventional crude oil production in Western Canada to concentrate on natural gas, oilsands, and offshore oil projects. The company will sell conventional oil assets this year and acquire gas properties, while participating in oilsands projects (see related story, p. 32) and offshore developments such as Terra Nova, off Newfoundland.

Petro-Canada plans capital spending of $1.08 billion (Canadian) this year, up from $818 million in 1998. That includes $400 million off Newfoundland; $260 million in Western Canada, mainly for gas exploration; and $95 million on oilsands.

BLM has scheduled a sale of National Petroleum Reserve-Alaska leases for May 5 at the Loussac Public Library in Anchorage. The agency decided to offer leases in the northeastern corner of NPR-A because of the Colville River delta oil discoveries near the reserve's northeastern corner (OGJ, Aug. 24, 1998, p. 26).