OGJ Newsletter

• U.S. INDUSTRY SCOREBOARD 5/24 [44,071 bytes]

Mexico will open its LPG market to foreign competition later this year or early in 2000, Pemex Director Adrian Lajous announced last week at an LPG conference in Cancun. Lajous said a new set of regulations for the LPG industry will be released by the government in coming weeks. The regulations are expected to affect LPG sales, transportation, and distribution and provide rules for eventual imports and the participation of foreign companies in the domestic market. Pemex will remain the only LPG producer in Mexico, however. LPG is widely used in Mexico in homes and small businesses. The market is estimated at 29 billion pesos/year, and consumption is about 300,000 b/d.

Brazil's National Petroleum Agency (ANP) has agreed to extend the 3-year period granted to Petrobras for completing exploration of the 36 blocks on which it has signed joint ventures with private firms, says Petrobras Pres. Henri Philippe Reichstul. Three years has been considered inadequate by many potential investors. On 34 blocks, covering most of Brazil's sedimentary basins, the exploration period was extended to 5 years from 3. In the Foz do Amazonas basin, the period was extended to 9 years. Reichstul expects ANP's decision will enable Petrobras to attract around $1.25 billion for exploration activities and $4 billion for development and production.

Reichstul also says Petrobras is returning 28 blocks to ANP-13 onshore and 15 offshore. In 1998, ANP divided the country into areas that would remain with Petrobras for signing joint ventures and areas that ANP would put out for international tenders. "We are returning these areas to the ANP due to the delicate financial situation of the country and sharp cuts decreed by the government on Petrobras' budget," said Reichstul.

In Peru, the new committee handling the Camisea natural gas project will call tenders for the two key contracts at the end of this month, says committee head Jorge Chamot (OGJ, May 3, 1999, Newsletter). Bidders for the transportation and distribution contract will have 4 months to submit proposals, and those interested in gas production will have 6 months. This means companies bidding for development of the gas fields will have information on the tariffs and the downstream players before they make their bids, Chamot says. The firm that wins the production contract can hold a minority interest, still to be determined, in the transportation-distribution contract. The committee will study bidders' suggestions before drawing up a final contract. Chamot adds that bids must consider the feasibility of having Camisea gas on Peru's coast by June 2003.

Meanwhile, the Camisea committee is also negotiating contracts with electricity generators and major manufacturers to ensure a minimum market for gas production. Chamot said companies that sign contracts before the tender will get a discount and a free connection to their premises. The door is also open to exports, provided there are enough reserves to cover domestic demand for 20 years, which is not seen as a problem. Chamot said the price of the gas will depend on the agreements reached for the two main contracts. The government is considering putting a ceiling on the gas price, he said, but, in any case, it would be lower than Shell-Mobil's estimate of $2.50/MMBTU.

Japan's Tohoku Electric Power has emerged as a likely new buyer for North West Shelf gas. Tohoku has been granted observer status in the negotiations between the project partners, led by Woodside, and the eight-member Japanese LNG buying group. Tohoku already buys about 3 million metric tons/year of LNG from Indonesia's Arun project under a contract that expires in 2004-also the target date for the first stage of the proposed North West Shelf Project expansion.

Outgoing Woodside Chairman Bill Rogers says plans for the North West Shelf expansion involve bringing a fourth LNG train on stream in 2004 but deferring a fifth train until Japanese demand becomes clearer. The two trains would double the project's capacity of 7.5 million tons/year, but a construction commitment depends on the Japanese utilities signing long-term contracts, ideally in the third quarter of this year, if the 2004 target for Train 4 is to be met.

Woodside and partners also have proposed developing the Brecknock-Scott Reef gas fields in the Browse basin off Western Australia. The two fields would provide gas for a fifth, and possibly a sixth, liquefaction train. If development were to proceed in the next few years, it would compete with the nearby Gorgon field development, also linked to a proposed LNG project.

U.S. independents Devon Energy and PennzEnergy have agreed to merge, creating a firm that would rank among the top 10 U.S. oil and gas producers, say the companies. The all-stock deal will create a new Devon Energy with an equity market capitalization of $2.6 billion.

Each Devon share will be converted into one share in the new company, while PennzEnergy shareholders will receive 0.4475 share. This means PennzEnergy shareholders will own about 31% of the new company.

The firms expect to save $50-60 million/year. The new Devon will be based in Oklahoma City. It will have proved reserves of about 2.1 tcf of natural gas and 318.5 million bbl of oil. Based on 1998 data, combined production of about 230,000 boed will consist of 60% gas.

U.S. Congress has again blocked MMS from issuing the often-revised oil royalty rule, this time until Oct. 1 (OGJ, Feb. 16, 1998, p. 36). The move coincides with a disclosure by the Project on Government Oversight (POGO) that it paid about $350,000 each to Bob Berman of the Department of the Interior's Office of Policy Analysis and Robert Speir, who is retired from DOE, both of whom were critical of oil company royalty valuations. DOI's Inspector General and the Department of Justice's Office of Public Integrity are investigating. POGO Executive Director Danielle Brian says the two men helped her group investigate alleged royalty underpayments. Sens. Frank Murkowski (R-Alas.), Don Nickles (R-Okla.), and Pete Domenici (R-N.M.) have recommended that the MMS rulemaking be halted.

The U.S. oil industry failed to get any tax relief in the $15 billion emergency spending bill that Congress is considering. Stripped from the bill were two measures by Sens. Domenici and Jeff Bingaman (D-N.M.): one would have created a $500 million emergency loan program for independent producers and service-supply companies; the other would have allowed operators of marginal wells on federal leases to reduce royalty payments by $1 for each $1 spent to improve production. Speaker Dennis Hastert (R-Ill.) promised to allow the House to consider those measures as stand-alone bills.

Also deleted was a provision by Sens. Pat Roberts and Sam Brownback, both Kansas Republicans, to forgive $200 million in interest that gas producers owe customers. Federal legislators had allowed producers to pass on a Kansas state tax, but reversed their decision in 1993 and ordered refunds, plus interest.

Despite the recent rebound in oil and gas prices, drilling is still suffering from the earlier oil and gas price slump.

Global Marine's latest summary of current offshore rig economics (Score) reveals that the worldwide Score has extended its decline to a full year. The global Score dropped to 29.4% in April from 39.3% in March. "The offshore drilling industry continues to suffer from last year's low oil and U.S. natural gas prices," said Global Marine CEO Bob Rose. "Recent contract day rates for jack up rigs drilling on the continental shelf in the U.S. Gulf of Mexico are now generally at or below cash operating cost and therefore are unlikely to go any lower," said Rose, adding, "ellipseoil and gas prices have recently risen to levels that should stimulate an eventual recovery in drilling."

The Petroleum Services Association of Canada (PSAC) forecasts that more than 8,900 wells will be drilled in Canada this year vs. an average of 10,000 wells/year over the past decade. PSAC said that, if it had issued its forecast in January, before the upturn in oil prices, it would have been difficult to justify an estimate of 7,000 wells this year. The new forecast is down 8% from 1998's 9,683 wells and is based on an average crude oil price of $16 (U.S.)/bbl and a natural gas price of $2.60 (Canadian)/Mcf. The association said about 60% of wells in Canada this year will be targeted for natural gas.

How does one get permission to build a gas-fired power plant in the U.K., despite the government's moratorium? Specify a new type of turbine.

This is the reason the Department of Trade and Industry cited when it announced Rolls-Royce Power Ventures has been given the nod to build a 49-MW plant at Croydon, South London. The design centers on a new version of Roll-Royce's Industrial Trent turbine, which DTI said "needed to be commercially demonstrated to ensure the future diversity of technology." And this was the reason, just after the moratorium was supposedly fixed in legislation, that Baglan Cogeneration was able to proceed with a plan to build a 500-MW plant in South Wales (OGJ, Apr. 19, 1999, p. 46). Still, there was no discrepancy over DTI's approval of the planned 58-MW combined heat and power (CHP) plant at the Stoke-on-Trent factory of Michelin Tyre. Explaining the CHP exemption, Energy and Industry Minister John Battle told parliament, "CHP plants are designed to produce both electricity and usable heat. They have environmental benefits due to their very high levels of efficiency."

Copyright 1999 Oil & Gas Journal. All Rights Reserved.