OGJ Newsletter

• U.S. INDUSTRY SCOREBOARD 1/11 [44,082 bytes]

U.S. oil and service companies continue to reel from low oil prices.

Phillips will cut 1,400 jobs, mostly E&P-related. The cuts will include 850 U.S. jobs-of which 400 will be lost at its Bartlesville, Okla., headquarters-and 550 elsewhere. The move is expected to pare costs by $230 million.

"I cannot visualize year after year after year of these unhealthy-type margins," said Chairman Wayne Allen. "I can't tell you absolutely that this is the bottom, but we haven't seen anything like this."

Conoco is cutting 975 jobs as part of a plan to cut $500 million in spending, bringing its 1999 capital program to $1.8 billion, a 20% drop from 1998. The firm will further reduce costs by combining some U.S. functions, sharing services more broadly, and deploying employees more effectively.

In the service/supply sector, Halliburton will lay off another 2,750 employees. The company had already announced a staff reduction of 8,100, including 5,550 in October, just after its merger with Dresser was approved. It blamed the latest cuts on customer scale-backs of projects in the North Sea, North Africa, and Latin America.

Independent producer Equitable Resources will reduce operating expenses by about $20 million in 1999 vs. 1998 and record about $120 million in related charges. The company expects to cut staff by 20% vs. mid-year 1998, bringing its total work force to less than 1,600. The firm's 1999 capital budget will be $119 million, 68% of which will be allocated to E&P. Its utilities unit is the only division that will increase spending in 1999.

Meanwhile, Costilla Energy has slashed spending by $4.8 million through staff and cost reductions. And Newpark Resources has cut planned 1999 spending to $28 million from the $60 million it anticipated earlier. It will lay off 100 workers.

Measures designed to help ailing U.S. producers are in the works. An independent U.S. refiner has adopted a remarkable tactic to draw attention to oil producers' plight.

Giant Industries will pay its crude oil suppliers in New Mexico's San Juan basin a $2/bbl premium over the going market price during Jan. 11-20.

"This unique and unprecedented move is intended to raise awareness of the problems of the domestic oil industry and to help ease the financial hardship that is currently facing localellipsecrude oil producers who supply Giant's two area refineries," said the company. Chairman James Acridge said, "All of the operating segments of the oil business today, as well as the consumer, should be concerned about the long-term viability of the producer and, ultimately, the health of the domestic oil industry."

Oklahoma Gov. Frank Keating has called a special session of the state legislature to consider measures to address the crisis facing the state's oil producers. He is asking lawmakers to consider two proposals: a change in the gross production tax system (see related story, p. 24), and an advancement of the date of gross production tax refunds to producers.

Canada's oil producers are also reacting to the oil price crunch (see related story, p. 29). George Fink, president of Small Explorers & Producers Association of Canada (Sepac), says companies' reduced cash flows will mean a lot less activity in 1999. Companies will be looking at low-cost, high-grade drilling opportunities, and higher-risk projects will not be drilled, he says.

Greg Stringham, a vice-president at the Canadian Association of Petroleum Producers (CAPP), also sees companies switching to quality from quantity, in terms of drilling projects. They also will continue to shift the ratio to gas from oil, says Stringham, adding that natural gas is the "unsung hero" that has kept the industry relatively stable through the downturn.

Heavy oil has been particularly hard hit by low prices. Sepac estimates that as much as 300,000 b/d of heavy oil production has been shut in.

Stringham sees a couple of positives for Canadian producers: the dollar exchange rate is positive for Canada vs. the U.S., and Canadian finding and development costs are still relatively attractive. There was some improvement in the heavy-light price differential in late 1998, and CAPP expects companies to continue with some heavy oil development in 1999.

Fink stressed that Sepac has not asked for government assistance. He says members are "free enterprisers" who don't want government overregulation in good times and are not asking for government help in bad times.

Innovative alliances may help industry cope with the downturn. Unocal's Spirit Energy 76 unit has agreed to form a deepwater Gulf of Mexico alliance with five U.S. engineering and service companies. Venture 76 Alliance will be a "comprehensive, deepwater field development organization," said Spirit Energy 76. "As opposed to strictly project-focused teams, the alliance will be directly involved in such predrilling activities as field development scenario planning and screening concepts for handling deepwater production."

Participants are Unocal Engineering & Construction, Aker Maritime Inc., Deepwater Consultant Alliance (W.H. Linder & Assoc. and W.S. Nelson & Co.), FMC Corp., Intec Engineering, and J. Ray McDermott. Spirit hopes to reduce deepwater project development costs, shorten cycle times, and access leading-edge technology. All the firms are expected to benefit from shared technologies.

In the downstream sector, Farmland Industries, Cenex Harvest States, and National Cooperative Refinery Association are discussing forming an operating alliance to include their refineries in, respectively, Coffeyville, Kan., Laurel, Mont., and McPherson, Kan., among other assets. They hope to gain efficiencies, reduce costs, and maximize use of capital by integrating operations.

Yearend 1998 oil industry statistics are beginning to roll in, revealing the dismal year the industry endured. Alaska North Slope crude prices fell to their lowest recorded level since the Trans-Alaska Pipeline opened 2 decades ago. The average annual ANS price, delivered to the West Coast, was $12.54/bbl, vs. $18.98 for 1997. The December average price was a grim $9.36/bbl, also a record low. The price had risen to $10.33 as of early last week, however.

While 1998 was a dog of a year for most of the petroleum industry, London's International Petroleum Exchange broke its trading records. IPE says trade volumes rose almost one third to 19.4 million contracts, compared with 14.7 million contracts traded in 1997. Brent futures made up 70% of the volume traded, averaging just under 54,000 lots/day, another record. This represented the equivalent of about 54 million b/d of crude oil, says IPE.

The exchange attributes its booming business to last year's exceptional price volatility, with Brent ranging from $16.80/bbl on Jan. 2 to an all-time low of $9.55/bbl on Dec. 21. IPE CEO Lynton Jones said, "the exceptionally low price levelsellipseclearly demonstrated the value of hedging."

In a move that could result in adding more oil to an already glutted market, U.N. Sec. Gen. Kofi Annan has asked the U.N. Security Council to approve $300 million in equipment and spare parts for Iraq's failing oil industry.

Annan reportedly requested that all equipment import contracts be processed as quickly as possible. The reason: Iraq may not be able to sustain its current export levels under the oil-for-aid agreement without the equipment needed to repair aging and war-damaged oil facilities.

Nigerian independent Famfa Oil and partner Texaco have announced a major wildcat oil discovery in the deep water off Nigeria. The firms' Agbami-1 well, drilled in 4,700 ft of water, cut 420 net ft of pay in multiple oil zones at 8,200-12,400 ft. The stacked reservoir sands ranged in thickness from 400 ft to more than 1,000 ft.

"Preliminary data indicate the reservoirs contain several hundred million barrels of recoverable oil," said Texaco. Famfa is operator of the block, OPL 216.

A planned LNG import terminal in northeastern Brazil is expected to be the first LNG project to be built under an alliance between Royal Dutch/Shell and a French joint venture (OGJ, Nov. 16, 1998, p. 40).

Shell Global Solutions signed a memorandum of understanding with Cryogaz Technologies-a 50-50 JV of Bouygues Offshore unit SN Technigaz and Gaz de France subsidiary Sofregaz-to cooperate on development of fast-track, low-cost LNG and LPG terminals. The planned Suape LNG import terminal near Recife will be South America's first regasification terminal and is to be developed by state firm Petrobras and Shell Brazil.

The controversy surrounding the Yadana gas pipeline from Thailand to Myanmar has been reignited. Myanmar's military government last week sent troops to suppress ethnic minority rebels who were reportedly attempting to sabotage the pipeline near the Thai-Myanmar border.

A 37-mile stretch was thought to be at risk of bombing. The pipeline, built by a group including Unocal and Total, was the subject of environmental and human rights protests during its construction (OGJ, Oct. 19, 1998, p. 36).

Copyright 1998 Oil & Gas Journal. All Rights Reserved.