OGJ Newsletter

• U.S. INDUSTRY SCOREBOARD 5/17 [44,070 bytes]

Among the latest rumors is that Chevron and Texaco are in preliminary discussions about a possible union. This was put forth on May 10 by the Wall Street Journal, which reported that the deal would value Texaco at $42 billion. The speculation died down quickly, however, as a deal did not appear imminent. While the firms would seem a natural union in some respects (they already have an Asian refining joint venture, Caltex), there would be considerable hurdles in combining their U.S. downstream operations, where Texaco's assets are operated jointly with Shell's in the Equilon and Motiva JVs.

Meanwhile, Total CEO Thierry Desmarest has again denied a recurring rumor that he is holding talks with Elf on a possible marriage, saying there are "no current discussions," as Total is fully immersed in completing its merger with Petrofina. On May 6, Total officially launched its bid for the as-yet unacquired shares of Petrofina (OGJ, Apr. 5, 1999, Newsletter).

And, in the service-supply sector, industrial gas giants BOC Group and Praxair are reported to be considering a merger.

In another bid to cut costs and improve performance, Elf has put a "for sale" sign on the assets that gave it entry into U.K. operations, having decided they no longer bring in enough money. Pierre Godec, managing director of Elf's U.K. unit, said, "Elf has a bright future in the U.K., and I believe that, by concentrating our activities on those areas where we have a competitive edge, we can continue to develop and play an important role in the U.K. oil industry." The assets up for sale include the Piper B, Claymore, and Saltire offshore platforms, plus the Flotta oil terminal and associated export pipelines and nearby exploration acreage. These were bought from Occidental in 1992, after Oxy pulled out of the North Sea following the Piper Alpha blast. Instead, the operator plans to concentrate its efforts on its Elgin/Franklin fields, due on stream next year, and the West of Shetland area, where it has drilled a number of tight holes (OGJ, Apr. 12, 1999, p. 28).

West Africa activity is superheating, given news that Angola has approved the choice of BP Amoco, Elf, and Exxon to lead exploration on three key deepwater blocks.

BP Amoco will take operatorship of Block 31 and a 40% stake; Elf will operate Block 32 with 30%; and Exxon wins Block 33 with 45%.

The blocks are in water more than 2,000 m deep, and the firms believe they may hold some of the largest untapped reservoirs in the world. The licenses are expected to carry huge signature bonuses. Sonangol will take a stake in all three blocks. Other participants and their interests have not been revealed, although Statoil, Exxon, and Marathon are expected to participate in Block 31.

India has extended by 3 months the bid closing date for the 48 oil exploration blocks being offered under its new license round (OGJ, Apr. 26, 1999, p. 24). Deadline is now Aug. 18.

The government decided to extend the bidding period because of the rebound in oil prices, which it expects will elicit a better response than had been received earlier. Some oil companies had also asked for more time to study the data made available to them, and some non-Indian firms had sought more time to formalize tie-ups with Indian companies for purposes of joint bidding.

Mumbai says feedback from its road shows and interest in viewing and purchasing data on the blocks have been strong.

A rush of speculators out of the crude oil market is being blamed for the fall of crude oil prices last week, which brought Brent crude below $16/bbl after a recent encouraging plateau. Dated Brent closed at $15.26/bbl at the end of trading in London on May 11, while Brent crude for June delivery closed at $15.98/bbl, with little change seen the following day.

Supplying a U.S. natural gas market expected by some to reach 30 tcf in the next decade continues to be a key concern for the industry (OGJ, Jan. 18, 1999, p. 27). North American drilling expenditures must double by 2010, if gas supply is to meet expected demand growth, which in turn depends on average prices no higher than $2.25-2.50/Mcf, says David A. Arledge, chairman and CEO of Coastal Corp. At a press conference after his company's annual meeting May 6, Arledge said, "We're going to have to gear up" to meet demand expected to climb to 30 tcf by 2010 from 22 tcf in 1998. But the demand growth depends on gas remaining competitive as a fuel for power generation.

"It's not going to happen," if producers need gas prices of $3/Mcf to raise drilling expenditures to the $26 billion/year level he thinks will be needed to ensure supply. "Canada has got to perform, and the deepwater Gulf (of Mexico) has got to perform," said Arledge, who is optimistic.

He told Coastal shareholders the gas market now offers "greater potential for improved margins than at any time in the last 20 years."

Plans to supply Japan with natural gas via pipeline from Sakhalin-area fields have taken a step forward, with Exxon announcing it will undertake a feasibility study on the matter, together with Japan Sakhalin Pipeline FS Co. (Jspfsc), a joint venture of Japanese firms Japex, Itochu, and Marubeni (OGJ, Apr. 12, 1999, Newsletter).

Exxon and Jspfsc have agreed to form a joint venture to perform the study. Exxon says the study is a significant step toward realizing not only a pipeline to export gas from its Sakhalin 1 development project but also other Sakhalin projects.

BP Amoco has called on the U.S. to allow Iran to play a greater role in the export of oil from the Caspian area. Tony Hayward, group vice-president of BP Amoco Exploration, said multiple pipelines will be needed to transport the oil, including a southern route: "I think Iran is a major player in this area, and we need to find a way to involve them in this game."

The U.S. opposes routing a Caspian export line through Iran, however, and supports the Baku-Ceyhan route, a much longer and more expensive alternative (see story, p. 36). To be competitive, says Hayward, Caspian projects would need to be viable at an oil price of $10/bbl, which means development and transportation costs should not exceed $2/bbl.

NATO has dropped a plan to have warships interdict tankers supplying oil to Yugoslavia via the Adriatic Sea (OGJ, May 10, 1999, p. 31). France and other NATO countries questioned the legality of stopping tankers without a formal declaration of war or a U.N. resolution against Yugoslavia.

Is the industry facing another federal investigation over the public's inability to grasp the laws of supply and demand where gasoline is concerned? It would seem so, with the U.S. Federal Trade Commission yielding to a request by Sens. Barbara Boxer (D-Calif.) and John McCain (R-Ariz.) for an examination of last month's surge in West Coast gasoline prices for any anticompetitive pricing activities.

Boxer had complained to FTC about the jump in gasoline prices that followed several refinery problems on the West Coast (OGJ, Apr. 5, 1999, Newsletter). The Western States Petroleum Association said its members are cooperating fully with the investigation, a procedure with which they are familiar.

Look for growing interest in renewable energy projects now that the European Union has made its plans a little more concrete. The EU aims to have renewables meet 12% of Europe's energy needs by 2010 and envisions an acceleration of renewable projects from now to 2003 by stimulating private investment in "near-market technologies-solar, wind, and biomass."

The EU has kicked off a campaign intended to lead to the installation of: 1 million photovoltaic systems; a total of 15 million sq m of solar collectors; 10,000 MW of wind-power capacity; 10,000 MW-hr of combined heat-and-power biomass installations; 1 million homes heated by biomass; 1,000 MW of biogas generating capacity; and 5 million metric tons of liquid biofuels generating capacity.

These projects are expected to require investment amounting to 30 billion euros ($30 billion), of which 75-80% would come from private sources: "Much of the necessary public funding is already in the pipeline and planned, mainly at national level, but also from EU programs."

DOE has awarded a $4.2 million grant towards a $5.4 million project backed by the Consortium for Fossil Fuel Liquefaction Science, a five-university partnership, for research into ways to produce cleaner alternate fuels and premium-quality chemicals. DOE said the research could result in new methods to use materials such as natural gas, coal, biomass, petroleum coke, and municipal solid wastes as fuels. The group will seek chemical processes that may not follow the traditional Fischer-Tropsch pathway. Research might also find ways to use CO2 to convert natural gas into fuels and chemicals-a possible long-range option for dealing with climate change concerns, DOE says.

Copyright 1999 Oil & Gas Journal. All Rights Reserved.