OGJ Newsletter

Jan. 3, 2000
McMoRan Exploration and Texaco have inked an agreement that illustrates the shift in upstream-sector focus taking place among majors and independents.

McMoRan Exploration and Texaco have inked an agreement that illustrates the shift in upstream-sector focus taking place among majors and independents.

The deal gives McMoRan the right to explore all or parts of Texaco's 90 tracts on the US Outer Continental Shelf, leaving Texaco to focus on its deepwater program. The OCS tracts cover 391,349 gross acres in 10-2,600 ft of water; included are seven leases in Louisiana state waters.

McMoRan will commit more than $100 million for exploration drilling over the next 4 years and will serve as the operator of the tracts while earning various interests. Texaco will retain the right to participate in the prospects McMoRan decides to drill. Texaco will retain its continuing OCS producing operations and certain development zones not included in the agreement, as well as 400 unexplored deepwater OCS blocks.

Commenting on the agreement, Robert S. Lane, vice-president of Texaco's Gulf of Mexico producing operations, said, "The Gulf of Mexico is an important area within Texaco's worldwide exploration and production plan, and this agreement allows us to focus on our deepwater Gulf projects while maintaining an active presence on the shelf."

McMoRan Co-Chairman James R. Moffett, said, "This partnership will be the foundation of an aggressive exploration program combining Texaco's leasehold inventory and McMoRan's exploration expertise."

In a watershed agreement signifying a possible thaw in Middle East relations, Egypt has agreed to sell natural gas to Israel through what Israe* Prime Minister Ehud Barak has called a "pipeline of peace."

Gas is to be transported from El Arish, Egypt, across the Sinai Desert to Israel and the Palestinian Authority, and later to Turkey, Syria, and Lebanon. Pricing and other details are being negotiated.

Estimates of supply quantities range from 2.2 billion cu m/year to 4 billion cu m/year. Completion of the line is expected within 2 years. It is being financed by Agip, according to a New York Times report.

National Iranian Gas Co. is prepared to export natural gas to Turkey starting this month under a take-or-pay contract signed with Turkey's Botas. NIGC officials say a 253-km, 40-in. pipeline has been laid from Tabriz to the border city of Bazargan and two high-pressure stations have been set up.

Iran and Turkey inked a 20-year gas export deal in 1996, according to which deliveries were expected to start in 1998. The amount was slated to increase from an initial 500 million cu m/year to 3 billion cu m/year by 2000 and to 10 billion cu m/year by 2005. Iran hopes to increase its gas exports to 4.5 billion cu m/year in 2000.

Eight expatriate pipeline workers, kidnapped last September in Ecuador, have been freed by their captors. The seven Canadians and one American had been taken hostage while working near the Colombian border for United Pipeline, a Canadian firm performing contract maintenance work on a pipeline owned by Alberta Energy unit City Investing.

According to unconfirmed press reports, City Investing paid a ransom of $3.5 million. No group has claimed responsibility for the kidnappings.

MMS is seeking additional changes to its proposed rulemaking for valuing oil produced on US government-owned land. Among them are: new language addressing the issue of "second-guessing" a sale under an arm's-length contract; the ability to issue binding value determinations; a revised definition of "affiliate" resulting from a judicial decision; a new calculation method for transportation costs; and elimination of MMS-published differentials.

MMS Director Walt Rosenbusch said, "Several changes have been made in this proposed rule [in response] to comments we received during workshopsellipseI believe this proposal demonstrates we have listened closely, and we carefully considered all of the comments that were received."

Three public workshops are planned to discuss the proposed rule, and the comment period is open until the end of January (OGJ, Dec. 6, 1999, p. 31).

The US natural gas industry will reap the benefits of a recent court ruling that upholds a US EPA rule prohibiting the use of lignite fuel in new power plants. The rule promulgating New Source Performance Standards (NSPS) for NOx emissions was challenged by the Lignite Energy Council. But a DC court of appeals ruled in favor of EPA, saying, "EPA did not exceed its discretion under section 111 of the Clean Air Act in promulgating these standards."

"This is the first major court decision supporting fuel neutral, output-based standards and is a major victory for EPA and for natural gas," said Rhone Resch, director of environmental affairs for NGSA. "For the first time ever, fossil-fired steam generating units, such as power plants and industrial boilers, have the opportunity to choose their fuel based on a single NOx performance standard. Natural gas wins with this scenario, because combustion of natural gas results in substantially lower NOx emissions."

NGSA had sided with EPA in favor of the NOx NSPS, filing with the Court of Appeals as an intervenor.

The fuel-neutral approach requires that all boilers, regardless of the fuel source, meet the same standard of emissions. The output-based standard, applicable to new utility boilers, links the emission limit to the amount of electricity produced. This provides a regulatory incentive to enhance unit operating efficiency, prevent pollution, and reduce NOx emissions, says NGSA.

The Queensland government has signaled a move away from coal to natural gas and renewable energy in the state's power generation sector through the announcement of the Cleaner Energy Strategy. Queensland Premier Peter Beattie said the state must look to competitive sources of gas and renewable sources of energy to control the rise in greenhouse gas emissions.

Under the strategy, the state will consider a number of measures, including a requirement that electricity retailers source a portion of their power from gas and renewable energy. In addition, all proposed projects' greenhouse gas emissions will be scrutinized under the state's environmental impact assessment process.

Queensland has taken several steps to increase demand for gas in the state, such as mandating that expansion of the state's Tarong power station be gas-fuelled.

In hopes of tapping further into the growing Asian LNG market, Australia LNG-the vehicle established early in 1999 to market Australian gas to potential Asian buyers outside Japan-has signed a heads of agreement with Al Manhal International Group (AMIG) to jointly study a proposed LNG import project at Gopalpur in the eastern Indian state of Orissa. The exclusive agreement will run for 6 months to investigate the potential for long-term LNG supply sourced from gas fields in Australia.

Abu Dhabi-based AMIG has proposed the construction of an LNG terminal in Orissa as part of an integrated complex that would include a regasification terminal, a urea-ammonia plant, a 2,500-Mw power plant, and a naphtha and gas cracker and associated petrochemical units. The complex would be a joint venture of AMIG and Industrial Promotion & Investment Corp. of Orissa Ltd., a state government undertaking.

Total investment at Gopalpur by AMIG and its associate, Vavasi Oil & Gas Pty. Ltd. of New Delhi, is expected to be over $5 billion. Sumitomo Bank will be financial advisor on the project. Current plans include first reception of LNG in late 2003 or early 2004, building up to a peak of 5 million tonnes/year.

Nigeria LNG was forced to shut down its $3.8 billion Bonny Island plant for the second time in 2 months due to heat exchanger problems. Earlier, protestors had forced the plant's shutdown for a few days but were dispersed after the intervention of President Olusegun Obasanjo.

The plant was expected to remain down until early January, in the hopes of skirting any potential Y2K-related operational problems. LNG deliveries to European buyers are not expected to be affected. Since start-up, deliveries have been made to Italy's Enel, Spain's Enegas, and Turkey's Botas.

Nigeria may be taking a step toward loosening the reigns on its petroleum sector though the offering of part of its interest in Nigerian Petroleum Development Co. to foreign investors. NPDC is the E&P division of state-owned Nigerian National Petroleum Corp.

Foreign firms-particularly mid-sized companies with hefty offshore experience that could serve as technical partners-are being sought for opportunities to farm into existing and future NNPC projects. NNPC produces 8,000 b/d of oil from three fields in five concession areas. Prequalification bids are expected to be reviewed in first quarter 2000.

In an effort to assist its UK business customers in managing their gas portfolios more efficiently, BP Amoco has launched an internet-based gas trading service. Said to be the first of its kind in the UK, the service, called "e-EnergyTrade," is available to all existing customers who have contracted to buy gas on a risk-managed basis and who apply for authorization. The service allows customers to buy and sell physical quantities of gas in accordance with their contractual arrangements.

BP Gas Managing Director Peter Mather says the new trading service is an important first for the business-to-business gas market. "For the first time, it gives business customers online control and management of their day-to-day gas trading while enabling us, as their gas supplier, to enhance the efficiency and quality of the service we provide," he said.

In an effort to boost flagging profits in the beleaguered Australian refining sector (see related story, p. 27), Caltex acquired Paddington Cellars, a liquor store in the Sydney suburb of Paddington.

Caltex says the acquisition is a pilot of a new format for the company and furthers its move into nonpetroleum retailing.

Drilling activity in Western Canada picked up in the second half of December, with 80% of the rig fleet now active, says the Canadian Association of Oilwell Drilling Contractors.

CAODC said 474 of 589 rigs were active in the third week of December, up from 318 at the same time in 1998. The association is forecasting an average rig count of 470 for first quarter 2000.