OGJ Newsletter

U.S. Industry Scoreboard 1/18[44,177 bytes]

Mergers continue to mount, with four new combines in the works.

Santa Fe Energy Resources and Snyder Oil signed a definitive merger agreement. The deal will give Snyder shareholders 2.05 shares of Santa Fe common stock for each Snyder share. The new firm, Santa Fe Snyder Corp., will have a market capitalization of more than $1 billion. It will be based in Houston and owned 60% by former Santa Fe shareholders.

Snyder Chairman John C. Snyder said, "We intend to take advantage of the current conditions in the energy industry to opportunistically pursue acquisitions of high-quality assets worldwide."

Saba Petroleum and Horizontal Ventures announced their planned merger, in which Saba shareholders will trade six shares for one HV share. The value of the deal was not disclosed.

U.K. independents Lasmo and Enterprise reluctantly admitted they are discussing joining forces. A Lasmo official told OGJ that the two companies-bitter rivals after Enterprise made an abortive hostile takeover bid for Lasmo in 1994-were discussing a possible merger. The news was relayed to London's stock exchange by Lasmo after it was initially leaked to the press.

Talks reportedly are in the very early stages. "While we are talking to Enterprise," said the official, "we are also examining all options. We are talking to a number of other companies about mergers, alliances, and joint ventures. Every oil company is in talks of this kind at the moment."

In the service/supply sector, Pool Energy has succumbed to Nabors Industries' takeover attempt (OGJ, Nov. 9, 1998, Newsletter). Nabors will acquire Pool for $518 million in a tax-free, stock-for-stock transaction, at a ratio of 1.025 Nabors shares per Pool share.

Oil firms worldwide continue to suffer under low oil prices.

BP Amoco has announced a staff reduction of 900 from its E&P division in the U.K., only about half of which it says is attributable to its recent merger. The rest it blames on low oil prices. Further cuts are expected as the two companies eliminate redundancies.

In another cost-saving measure, Texaco has slashed its 1999 capital budget by $600 million, to $3.7 billion. The move is coupled with an acceleration of a previously announced plan to cut recurring costs and expenses by $650 million through 2000. Texaco will take about $350 million in special charges for fourth quarter 1998.

Texaco had expected to realize $450 million in cuts this year, but it now hopes to realize the full $650 million in 1999. It said the revision reflects "general industry consensus that crude oil prices will not rebound as previously expected."

Union Pacific Resources will take a $760 million charge for fourth quarter 1998, limit capital spending to $500 million vs. $1.2 billion in 1998, and reduce debt by $250 million.

In Japan, Idemitsu Kosan has announced plans to cut its staff by 1,500 by yearend 2003 through attrition. The move follows similar cuts of 900 and 1,200, by Showa Shell Sekiyu and Cosmo Oil, respectively.

China is planning a drastic measure to bring its refined products supply and demand back into balance. China Daily reported that a government official said 120 small refineries would be closed in an effort to "clear up chaos in theellipsemarket." No new projects will be approved this year.

China's 166 refineries have a total capacity of 260 million metric tons/year-an excess of almost 100 million tons/year above demand. The 120 small refineries account for 15 million tons/year of capacity.

On the upside, refiners in Singapore are getting a temporary boost from cold weather in the Northern Hemisphere.

Increased demand for gas oil and kerosine have caused the island nation's refiners to boost crude runs. Singapore Refining Co. has upped throughput to 240,000 b/d from the 220,000 b/d it was running in fourth quarter 1998, said General Manager C.C. Chen. He said there had been a slight market rebound due to cold weather in the U.S., but added SRC does not expect it to last.

Mobil is reportedly considering running its 300,000 b/d Jurong refinery flat out to take advantage of improved refining margins. This follows a rise in throughput to 285,000 b/d from December's 270,000 b/d.

Singapore's other two refineries are maintaining their utilization rates.

IPAA Chairman George Yates says the oil industry may be in worse shape than it appears, and it appears pretty bad.

Yates said low oil prices are eroding the oil infrastructure in the Lower 48: "And when that goes, we've lost the gas infrastructure, too." In addition, technological advances have enabled production of more oil from fields more quickly than ever before, and now that drilling has slowed, production decline curves may plunge. "We don't even know what our national depletion rate is," said Yates, "nor do we have a good forecast on depletion. We need a study on the subject." He also wonders if the Clinton administration realizes that Saddam Hussein has become the swing producer in the world oil market, with the power to seesaw it: "We're putting Saddam Hussein in a position to hang us out to dry."

Independent gas producers need to regain control over their commodity and essentially reinvent their business to survive a lean market the next few years, says John E. Olson, senior vice-president of Sanders Morris Mundy's natural gas group. At an IPAA meeting in Houston last week, he described himself as the "last man standing who is still bullish on (the natural gas) business."

"The salvation of this business is literally going to be in the cogeneration market," advised Olson, "and the way you work it is to rebundle your service effectively." IPAA members' new "best friends" are the 1,200 new cogeneration and independent power plants cropping up in the U.S. and Canada, he said.

IPAA members walked away with the following directives: reduce wellhead price volatility; recapture the long-term contract market; maximize contract "bulletproofing" through indexing, swapping, and rolling hedging; move to the midstream and downstream through joint ventures with cogen plants and peaking units; and continue to minimize crude production and exposures.

An international consortium will be formed to build the much-discussed Baku-Ceyhan oil pipeline, Turkey's first deputy minister of energy and natural resources, Urdakul Igitgueden, told reporters. The group will be set up after Turkey, Azerbaijan, and Georgia sign an agreement endorsing the plan.

By forming the consortium, Turkey is sending a message to Azerbaijan International Operating Co. members that the project will go ahead with or without their participation. The Baku-Ceyhan route is the favored route of the Clinton administration for exporting Caspian Sea area oil production.

Norway's Saga Petroleum has asked Iran for permission to begin negotiating participation in the Dehl Uran and Cheshmeh-Khosh fields. Iran is in need of international capital and advanced technologies to modernize its oil industry, but U.S. trade sanctions have hindered the process in recent years.

The Kyoto protocol on global warming could cost the U.S. more than 100,000 jobs in several key industries.

A U.K. journal called Energy Policy said compliance with the terms of the agreement could halt production of aluminum and refined petroleum products in the U.S. In the article, economist Ronald J. Sutherland summarized the conclusions of several economists, who say that much of the treaty's impact would fall on six industries: iron and steel, refining, aluminum, chemical manufacturing, cement, and paper and allied products.

Many of the lost U.S. jobs would simply migrate to nations that decline to accept the emissions targets, said Sutherland. Neither the job shifts nor the resulting economic disruption would reduce emissions of CO2 or other greenhouse gases, he added. Rather, emissions would be redistributed, like the jobs, from developed to developing countries.

Emissions might even increase as a result, said Sutherland.

BP Amoco Pres. and Deputy CEO Rodney Chase added to the emissions control debate on Jan. 13 by saying that energy taxes can be "a power instrument" in reducing greenhouse gas emissions. While environmental groups were said to welcome the "important shift" in BP Amoco's stance, setting it apart from other petroleum companies, Chase's speech to London's Fabian Society was not as altruistic as it first appeared. Chase said that, while energy taxes could be useful in curbing emissions, they were not the best instrument, and they should be applied only to small energy users, while energy giants-such as BP Amoco-should be offered tax incentives to reduce emissions.

"For large, capital-intensive industries," said Chase, "I am convinced that emissions trading offers the greatest potential for achieving emissions reductions at (the) least cost and (at) minimum competitive disadvantage. But for smaller companies, whose energy use is low and where emissions levels receive a low priority, properly designed taxes could have a very useful role to play in providing incentives to reduce energy costs and emissions."