OGJ Newsletter

Jan. 10, 2000
Global oil markets dipped slightly just before the end of the year in response to news that OPEC had stepped up production to prepare for possible supply problems associated with the Year 2000 computer bug.

Global oil markets dipped slightly just before the end of the year in response to news that OPEC had stepped up production to prepare for possible supply problems associated with the Year 2000 computer bug.

OPEC compliance with pledged production cuts was down to a reported 70% at year's end. In London trading Dec. 30, Brent for February delivery lost 37¢/bbl on the day, to close at $25.08/bbl. In New York, February-delivery NYMEX crude was down 87¢ to $25.60/bbl. By mid-morning Jan. 4, the NYMEX futures price had risen to $26.54/bbl, as traders learned there had been no reported supply problems resulting from the much-hyped Y2K bug.

In fact, the global energy sector-and industry, in general-should be commended for a massive, coordinated effort to ward off the potentially disastrous effects of the date rollover. Moments after midnight on Dec. 31, 1999, a deluge of press releases from power generators reassured the oil and gas industry that power supplies continued uninterrupted. Nearly all of the companies attributed advanced preparedness for their triumph over the millennium bug.

API said, "Essentially 100% of world oil production, natural gas production, and refinery capacity has successfully made the transition to Jan. 1, 2000." The petroleum industry, including multinational firms, spent more than 5 years and an estimated $2 billion preparing for the date rollover, according to API data. Likewise, the US natural gas grid received kudos for pulling together to surmount any Y2K trauma. Commenting on the issue, Oliver G. "Rick" Richard III, Chairman and CEO of Columbia Energy Group and the natural gas industry's senior adviser to the President's Council on Year 2000 Conversion, said, "The natural gas industry faced a complicated test, and it appears we passed with flying colors."

A variety of oil exploration and development projects are moving forward around the globe, demonstrating a growing faith in the oil market's newfound recovery.

No doubt making their new year a bit brighter, Elf and its partners have made yet another discovery on Block 17 off Angola-the group's eighth for the license area. Camelia 1, drilled in 1,296 m of water about 6.5 km from Dalia 4 (see map, OGJ, Oct. 18, 1999, p. 38), flowed 9,000 b/d of 23° gravity oil on test. Block 17 partners include operator Elf, Exxon, BP Amoco, Statoil, Norsk Hydro, and TotalFina.

Australian exploration company Santos Ltd. is seeking a rig to begin its offshore exploration program in the Sampang production-sharing contract area off East Java, where it plans to drill two or three wells this year.

Russia's Rosneft expects to sign an agreement with ARCO shortly for the exploration of Astrakhanovskii Block on the Sakhalin Shelf, also known as the Sakhalin-IV project, according to reports from Eastern Bloc Research. "Discussions have centered on the financing of work, the creation of an operating company, and on a production-sharing agreement to develop the field, if it is found to be commercially viable," said the analyst. Seismic surveys and the drilling of an exploratory well will cost $20 million, to be provided by ARCO, according to the report. The cost of additional exploratory work-expected to last 6 years-will be shared in proportion to the shares held by the consortium members, which are: Rosneft, 25.5%; Rosneft's Sakhalinmorneftegaz unit, 25.5%; and ARCO, 49%. The project's total development cost is estimated at $2.6 billion.

Meanwhile, Ecuador wants to move forward with several key petroleum projects during 2000-01 and is seeking foreign investment to aid its efforts. In addition to the construction of a heavy oil pipeline by a group of operating companies, the projects include: putting out for bid the Ishpingo-Tiputini-Tambococha heavy oil development in the Oriente basin; selection of companies to operate the five mature oil fields that make up the bulk of Petroecuador's output (Shushufindi, Sache, Libertador, Auca, and Cononaco); licensing of 11 blocks in the Oriente basin's southern end and 3 blocks in the Gulf of Guayaquil; and outsourcing operation of the La Libertad refinery on the Santa Elena Peninsula. Implementation of the projects will require $2.8 billion, and production could reach 700,000-750,000 b/d, says the state firm. Essential to the attainment of Ecuador's target is the construction of a second heavy oil pipeline.

Independent producers are among those taking some time to reassess their asset portfolios following a year full of megamergers.

In a move that will more than double its natural gas reserves in the US Appalachian basin, Equitable Resources reached a definitive agreement to acquire the Appalachian production subsidiaries of Statoil Energy, formerly the Eastern Group. The units-Eastern States Exploration Co. and Eastern States Oil & Gas-were acquired for $630 million. The deal involves assets containing 1.1 tcf of proven natural gas reserves and 6,500 gas wells in West Virginia, Kentucky, Virginia, Pennsylvania, and Ohio; the properties are adjacent to Equitable's existing Appalachian properties.

Meanwhile, Occidental Petroleum and EOG Resources have agreed to an asset swap. Oxy will receive: properties in California's Sacramento Valley with production of 12 MMcfd of gas; mineral rights to more than 700,000 acres in California; and properties in the western Gulf of Mexico that produce 26 MMcfd of gas equivalent. EOG will receive: Oxy's East Texas properties, which produce 33 MMcfd of gas and 3,000 b/d of oil and lie next to existing EOG properties; and certain exploration rights on 312,000 acres in the Oklahoma Panhandle.

The Petroleum Authority of Thailand (PTT) is on the verge of undergoing a major restructuring and privatization, says PTT governor Viset Choopiban. The reform will primarily involve reorganization of the state energy firm's businesses, merging of several subsidiaries, sale of certain assets, and creation of a holding firm, PTT Holding Co., to be owned 20% by the public. An initial public offering is planned in second half 2000.

Due to go to the PTT board for approval this month, the reorganization plan involves dividing PTT's businesses into three key sectors: oil, natural gas, and petrochemicals. In addition, oil procurement will be merged with the refining operations of Thai Oil Co., the country's largest refiner, owned 49% by PTT. And PTT's retail business will be merged with Thai Petroleum Pipeline Co., as will natural gas marketing. Natural gas trading will be grouped with PTT Exploration & Production (PTTEP), while two petrochemical subsidiaries-Thai Olefins and Aromatics Thailand-will be combined.

Following the restructuring, PTT will sell its entire stakes in three other refining companies. They are: a 24% share in Bangchak Petroleum, 36% in Rayong Refinery, and 36% in Star Petroleum Refining. PTT also will offload its 25% holding in National Fertilizer.

According to senior PTT officials, the exercise is meant to streamline the firm's operation to survive in the highly competitive business environment in the new decade (see related story, p. 14).

Bahrain's emir issued a decree late last month finalizing the merger of the state-owned refining company, Bahrain Petroleum Co. (BAPCO), and the oil-production firm, Bahrain National Oil Co. No reason was given for the combine, although some observers suspect it is preparation for a possible privatization efforts, given flagging production in the emirate.

At least initially, all of the joint stock shares for the new company will be held by the government, according to local reports. Bahrain does not export crude, only refined products from BAPCO's 250,000 b/d refinery.

Gaz de France has made an international call for bids as it is seeking a partner for its engineering unit Sofregaz in order to give it the critical size it needs. GdF is reportedly looking for a company involved in engineering "beyond gas" and is reportedly negotiating with a Canadian and two European firms. It hopes to complete the deal in first half 2000. However, it plans to retain a "significant" portion of Sofregaz, which is expected to post sales of 480 million francs this year, down from 600 million francs in 1998.

Chakib Khelil has been appointed Minister of Energy and Mines for Algeria, replacing Dr. Youcef Yousfi. Yousfi has become the country's new foreign affairs minister in the cabinet of new Prime Minister Ahmed Benbitour, who has replaced Smail Hamdani. Khelil, a former executive in state oil firm Sonatrach, has been adviser on energy to Algerian President Abdelaziz Bouteflika. He was also energy adviser in dealings with the World Bank in Washington.

Oil spill recovery efforts are continuing off the coast of France, where the tanker Erika broke up last month (OGJ, Dec. 20, 1999, p. 38). Environmental damage from the Erika spill is considered worse than that of the Amoco Cadiz, a 1978 spill off France, according to local press reports. The Erika damage was compounded by the hurricane-force winds that hit France in late December.

Cleanup crews are getting some much-needed assistance from TotalFina, which agreed to make $6.1 million in emergency funds available for remediation efforts. The French oil giant made the monetary commitment-matching that made by the French government-after TotalFina Pres. Thierry Desmarest met with French Prime Minister Lionel Jospin. The funds will be spent on purchasing pumping equipment to recover the 18,000 tonnes of oil still contained in the two halves of the vessel's hull, now in 120 m of water about 70 km off the French coast. Funds from TotalFina-which had contracted the Maltese-registered tanker and is under no legal obligation to assist in the recovery efforts-will also be used for procuring specialized teams for the operation.

Those heading up the work efforts say the cleanup could take months.

TransCanada PipeLines has postponed plans for a $100 million (Can.) pipeline in the Fort Liard region of Canada's Northwest Territories (OGJ, Aug. 2, 1999, Newsletter). There have been a number of large natural gas discoveries in the area just north of the Alberta border. But TransCanada says there is not adequate support for the pipeline from producers.

The 150-200 MMcfd pipeline was to extend north from a TransCanada pipeline at Zama Lake in northwestern Alberta to Fort Liard; deliveries were scheduled to begin Apr. 1, 2001.

TransCanada said talks are continuing with producers, and the project will be considered if proven reserves in the area increase.

TransCanada is also holding discussions with other pipeline companies and producers on a possible consortium to build a $2 billion pipeline from the Mackenzie Delta in the northern Arctic area, where gas reserves totaling about 10 tcf have been discovered. Westcoast Energy already has a pipeline with excess capacity close to a Fort Liard discovery by Chevron Canada Resources.