By OGJ editors
HOUSTON, May 1 -- In his first meeting with the press since being named president of Petroleos de Venezula SA, Alí Rodríguez Araque last week emphasized that Venezuela still firmly supports the objectives and decisions of the Organization of Petroleum Exporting Countries.
Asked if Venezuela would increase its oil production to ease the country's economic problems, Rodríguez said, "Long experience has taught us that cooperation is a key factor for maintaining stability in the oil market." Rodríguez also is secretary general of OPEC.
He was named president of PDVSA by newly restored President Hugo Chávez in an effort to return the country's oil operations to normal (OGJ Online, Apr. 22, 2002). At his press briefing, Rodríguez noted that one of the first acts by Chávez, upon his return to office after being briefly displaced by an attempted military coup, was to pledge Venezuela's support of OPEC oil policies.
"One of the conditions for having a good role in OPEC is to have a strong economy in Venezuela. And one of the reasons for my PDVSA appointment is to support this position," Rodríguez said.
Price is right
The average price for OPEC's basket of seven benchmark crudes recently pushed above $25/bbl, well within the group's targeted range of $22-28/bbl, "which is where we want to see it," Rodríguez said. Maintaining cooperation on oil supplies with non-OPEC producers, especially Russia, is the key to such market stability, he said.
"We are persistently analyzing the market, and even though prices are at a good level right now, we are always looking to strengthen our cooperation with non-OPEC producers, which is essential during difficult times," Rodríguez said.
He said he is encouraged by reports that US economic growth this year has been better than expected. He expressed hopes that global demand for oil will increase through 2002, although, he said, "we see the demand growth forecast as being modest."
Rodríguez earlier indicated that OPEC ministers would likely maintain the group's current production quotas at their next meeting in June. At his press briefing, he said OPEC members will carefully assess supply, demand, and prices before making any decision, however. "We will create a difficult situation if we do not seriously take into account an analysis of the market situation before we act," Rodríguez said.
US producers hedge
Robert Morris, industry analyst for Salomon Smith Barney Inc., reported last week that most of the 24 producers he follows have taken advantage of recent high prices to hedge future oil and natural gas production against possible price drops later this year.
"Companies in our E&P coverage group, on average, have hedged nearly 50% of their estimated second and third quarter North American natural gas volumes and nearly 28% of their estimated crude oil production," he said.
Producers apparently are more bullish about prices over the longer term, however. "These same companies, on average, have hedged only 32% of their estimated fourth quarter 2002 and 7% of estimated full-year 2003 North American natural gas production. At the same time, they have hedged roughly 24% of their estimated fourth quarter 2002 and less than 4% of estimated full-year 2003 crude oil volumes," Morris said.
Budgets sag
Another clear trend emerging from first quarter conference calls to financial analysts, he said, is that most US exploration and production companies are awaiting more evidence that recent increases in commodity prices are sustainable before raising their drilling budgets for 2002.
"Despite the significant uptick in natural gas and crude oil prices since the beginning of the year, E&P companies do not appear eager to increase full-year spending plans at this juncture," he said.
Initial 2002 exploration and development budgets on average are based on spot prices of roughly $22/bbl for benchmark US crudes and $3/Mcf for gas. Compared to equivalent future contract prices on the New York Mercantile Exchange of $25.10/bbl for oil and $3.20/Mcf for gas, those proposed budgets "equate to roughly 80% of after-tax operating cash flow," said Morris.
Even using Salomon's more modest price projections of $22.75/bbl for oil and $2.85/Mcf for gas for 2002 as a whole, those budgets still amount to only 86% of the companies' projected cash flow, he said.
That doesn't reflect a lack of geoscience personnel or "drill-ready" projects, Morris said. "Most E&P companies are indicating that they are more likely to apply any incremental excess cash flow from higher-than-anticipated commodity prices near-term to reduce debt [or] pursue acquisition opportunities to augment their future drilling inventory," he said.
