Oil markets are easily spooked these days, given the dwindling state of oil inventories and OPEC's continued adherence to production cuts.
The prospect of Iraqi exports drying up for awhile sent a jolt through markets last week, propelling oil prices to their highest level since the Persian Gulf war.
Iraq briefly halted exports that would have otherwise continued under a 2-week extension of the UN oil-for-aid sales program. The Iraqi sales program normally would have been rolled over for another 6 months, but the UN Security Council opted for just the 2-week extension while debate continued on Iraqi sanctions. Diplomatic sources say the debate focused on US and UK pressure on Russia and France to concur on conditions under which sanctions would be lifted. Baghdad then lashed out at the Security Council and threatened to halt its exports until sanctions are lifted.
Turkish officials reported that Iraq had halted pumping crude through its pipeline from Kirkuk to the Turkish port of Ceyhan on Nov. 22.
Jittery markets responded to what seemed to be an imminent crisis in an already tight market: NYMEX crude for January delivery rocketed to $27.07/bbl at closing Nov. 22. But the seeming crisis evaporated almost as quickly as it arose: On Nov. 23, NYMEX January crude fell by 63¢ on the day-and IPE Brent duplicated that decline, to $25.15/bbl-amid reports Baghdad will agree to another 6-month rollover of the oil-for-aid sales program.
Despite the hoopla accompanying the signature of agreements centering on the Baku-Ceyhan oil pipeline by the governments of Azerbaijan, Georgia, and Turkey last week, nothing has really changed to improve the outlook for the project's viability, says BP Amoco, head of the group developing the Caspian oil reserves critical to that pipeline's economic feasibility.
Government officials had touted the signings as a breakthrough in talks over the 2,000-km pipeline to deliver Caspian oil from the Azeri capital to the Turkish port.
BP Amoco, operator for the 10-member AIOC consortium, said, "Our position stands as before: We will support Baku-Ceyhan only if it proves economically feasible." "We view these agreements as important in that they provide a framework for further talks."
Questions remain over the volume of oil that would be available to make the line viable and Turkish willingness to guarantee cost overruns for its segment of the line. The US, jawboning hard to get the project approved (because it opposes alternative routes through Iran or Russia), claims BP Amoco is obstructing negotiations.
Argentine firms are hunkering down to deflect unwanted interest from multinationals, after two of their biggest brethren were recently swallowed.
Argentina's PC Holdings plans to carry out an ambitious reorganization of its flagship energy unit Perez Companc that will give owners of the country's largest oil equity greater control.
Since Repsol's $15 billion purchase of rival firm YPF and Chevron's acquisition of Petrolera San Jorge, speculation has run high that Perez would be the next to fall into foreign hands-but the offer effectively ended that.
The holding-controlled by the merchant family Perez Companc-said it will offer 2.7854 Class B shares in PC Holdings for each Perez Companc share. For the next 10 years, Class B shareholders will receive 1.5 times any dividend paid on PC Holdings' family-owned Class A shares. Class A shares will have five votes compared to one for Class B shares. And once the swap is completed, shares will be listed on the Buenos Aires and New York stock exchanges.
"We want to enter foreign capital markets because we need $2 billion for new investments," CEO Oscar Vicente said. "We wouldn't dream that the local market would be able to provide such a figure."
Funds raised will be used for projects from redeveloping marginal Venezuelan oil fields to searching for gas in southern Argentina.
The listing "opens up a whole new clientele of dedicated oil investors," said one official in Perez Companc. The swap offer, to start Nov. 29, will close on Jan. 25, 2000. Merrill Lynch and BBV Banco Frances are managing the deal.
Australia's oil and gas executives are worried about a "brain drain" from the local industry, according to a recently released PricewaterhouseCoopers study about challenges facing oil and gas CEOs in Australia.
The survey found that, as a result of staff losses caused by cost-reduction programs and corporate downsizing, industry leaders are now worried about the loss of people with important knowledge and experience-particularly in the technical and operational areas.
Having seen so many "walking out the door," much of the expertise will never be recovered, and firms may have to employ expatriate specialists or adopt "salary bargaining" during a future oil upturn.
The study also showed that environmental management issues would rise markedly in importance during the next 5 years. This may mean the increased need for significant time, resources, and capital injected into this area in the coming years as companies come to grips with issues where there is no experience to draw upon, such as carbon trading.
The deepwater E&D frenzy off West Africa shows no sign of relenting.
Nigeria plans to put 53 offshore blocks on offer soon, including 29 new blocks in ultradeep waters (>2,500 m) and 16 blocks revoked by the government last July that were originally awarded by the previous administration.
The offering also includes another 14 concessions in the onshore Niger Delta region. Nigeria, seeking to boost its reserves to 30 billion bbl from 15 billion bbl, is mulling Angola's approach to exploration licensing, which entails bonus bidding for production-sharing contracts on blocks. Nigeria is trying to move away from the trouble-plagued approach of joint-venture E&D, which often stymied work because of cash calls in arrears from the cash-strapped government for its share of the work program outlays.
Another deepwater West African giant may be shaping up off Equatorial Guinea. Triton Energy thinks it may have a 500 million-bbl oil field off that nation's coast.
Based on the results of its Ceiba 1 and 2 wells off Equatorial Guinea, Triton plans to implement an accelerated appraisal and development program to allow for early production from Ceiba field, now confirmed as a "significant oil discovery" (OGJ, Oct. 18, 1999, p. 90).
Ceiba 2 well, which was drilled about 1 mile to the southwest and 342 ft downdip of Ceiba 1 discovery well and 22 miles offshore on Block G, cut 300 ft of oil-bearing pay in a single, continuous column, says Triton.
The well was drilled to 8,744 ft TD.
"The Ceiba 2 appraisal well proved more than the minimum economic reserves necessary for Phase 1 development, the primary well objective, and substantially reduced key reservoir uncertainties," said Triton Pres. and CEO James C. Musselman.
"Importantly, the Ceiba 2 well indicates that the oil, in part, is likely to be stratigraphically trapped. If this is the case, it substantiates our view that the field's ultimate size may prove to be in the upper range of our initial estimates," he said. Triton earlier had put that range at 300-500 million bbl.
And the deepwater fever has spread to India.
Faced with declining production from its main oil fields, both onshore and offshore, India's Oil & Natural Gas Corp. has opted to explore aggressively deep waters in the eastern and western seas. For this, ONGC plans to line up a fleet of deepwater rigs soon, says ONGC Chairman Bikas C. Bora.
Bora says ONGC soon will drill its first deepwater well to explore for oil in the Kerala-Konkan basin, for which it has already moved its sole deepwater rig, Sagar Vijay, from the western sea after upgrading it to operate in up to 900 m of water. He said, "In case we strike successfully in theellipsebasin, we will continue to operate our rig in the eastern sea. In such a situation, ONGC will hire more deepsea rigs to recommence its deepsea operations in western waters after January 2000."
After failing in its first two attempts to find oil in deep waters, ONGC found oil with a third well in the Krishna-Godavari basin. Seismic and other studies are being conducted to assess the extent of the discovery, Bora added.
Once again, the US Gulf of Mexico rig market continues to show gains, according to Global Marine's summary of current offshore rig economics (SCORE). The gulf SCORE rose 4.4% to 23.6% in October, while the global SCORE increased 0.7% to 23.2%.
"Over the last 4 months," said Global Marine Chairman Bob Rose, "the US Gulf of Mexico region has seen an increase of 23 in the number of offshore rigs employed. This increase in demand has driven day rates higher, as reflected by a 22.6% increase in the market's SCORE during this 4-month period."
Elsewhere, only West Africa showed improvement in October, says Rose.
"Continued bidding activity for Year-2000 drilling programs in West Africa has been encouraging and is expected to lead to increased contract awards over the next few months."
US oil producers have gained some ground in the battle over the proposed new MMS royalty rule. The agency says it plans to repropose the rule for valuing oil produced from federal lands after soliciting further input at workshops-as yet unscheduled-in late January. Plans call for MMS to issue a supplementary rule by mid-January and a final rule in March 2000. MMS also plans to repropose the royalty rule for Indian lands, with a supplemental proposal in December, followed by workshops, and then a final rule in April 2000.
MMS Director Walt Rosenbusch made the announcement after meeting with New Mexico Sen. Jeff Bingaman and a group of independent producers last week in Albuquerque. Producers called for a revision and reproposal after White House and congressional negotiators agreed to end a long standoff over the new rule in the appropriations process (OGJ, Nov. 22, 1999, Newsletter).
Exxon and Mobil have proposed to shed about 15% of their combined US retail networks, sell Exxon's Benicia, Calif., refinery, and interests in several US pipelines in order to get government approval for their merger, reports the Wall Street Journal. Involved are as many as 2,400 service stations, Exxon's exit from the US Northeast, and Mobil's departure from the mid-Atlantic states, the newspaper reported. Neither firm would comment on the report.