OGJ NEWSLETTER

May 7, 1990
OPEC ministers arriving in Geneva for an emergency monitoring committee meeting all agreed that the organization needs to cut crude oil production 1-1.5 million b/d. But after the first day it was clear that unanimity extended only to the general principle and not to details of how cuts should be implemented.

OPEC ministers arriving in Geneva for an emergency monitoring committee meeting all agreed that the organization needs to cut crude oil production 1-1.5 million b/d.

But after the first day it was clear that unanimity extended only to the general principle and not to details of how cuts should be implemented.

Even the threat of further price declines as OPEC oil, still flowing at more than 23 million b/d, continued to glut the market failed to provide the usual incentive for rapid allocation of production cuts that in theory would restore some resemblance of balance between supply and demand.

European markets were quiet in advance of a result from Geneva, with North Sea Brent blend trading at $17.45/bbl for June delivery, down about 5/bbl on the week.

WTI futures for June delivery closed May 2 at $18.68/bbl, down about 40 on the week.

European markets seemed more concerned with the aftereffects of a U.S. court ruling than with prices.

The ruling, that the Brent forward market is legally a U.S. futures market, would make transactions outside a formal exchange illegal and allow disputes to be taken to U.S. courts.

European companies are tending to avoid trading with U.S. companies and hoping the Commodity Futures Trading Commission will find a way to keep U.S. traders in the market. Britain's Department of Trade and Industry is also studying the ruling.

The Brent market will dry up this summer with shutdown of the Brent pipeline and various platforms for extended maintenance.

One result is likely to be the end of separate Brent and Ninian crude streams from Sullom Voe. The two streams probably will be commingled ahead of the separation facilities.

For sale or not for sale? The board of Union Texas Petroleum, one of the largest U.S. independents, authorized the executive committee to explore selling the company and other alternatives to enhance equity value. It said a sale is not expected to be completed before November.

Union Pacific Corp. decided not to spin off or sell part of Union Pacific Resources Co., which had been the plan since early 1989.

UP Chairman Drew Lewis said he believes the unit is worth more than $4 billion, not the $3 billion indicated by the investment banking community. Main reason: opportunities to add oil and gas reserves along Union Pacific's Rocky Mountain railroad right-of-way land grant, on which the company has identified 45 exploration plays.

UP raised the subsidiary's 1990 budget to $380 million in late April from $350 million. Capital and exploration spending, fueled by railroad profits, could reach $500-600 million/year in as few as 2-3 years.

Meanwhile, Wolverine Exploration Co., Fort Worth, signed

a letter of intent giving it the exclusive right, subject to a final agreement, to participate in Amoco Production Co.'s Houston region 1990 exploratory drilling program on and offshore.

Grace Drilling Corp. and FlowDril Corp., Kent, Wash., set up a partnership that will have exclusive marketing rights to FlowDril's ultrahigh pressure, fluid jet assisted drilling system in the U.S. for 25 years.

The system, capable of delivering a fluid stream to the formation in front of a drill bit at as much as 34,000 psi, has consistently achieved rates of penetration two to three times those of conventional drilling systems in East and West Texas.

The partnership expects to have three or four commercial systems by yearend 1990.

The Soviet Union will be able to fulfill its obligations for oil exports even if Mazeikiai refinery in Lithuania shuts down, a Soyuznefteexport Foreign Economic Association spokesman told Tass news agency.

Mazeikiai's 7% of Soviet product exports can be made up by boosting runs at other refineries in the Russian federation and other republics without losing quality, he said.

Iran has offered to sell Japan crude oil for strategic storage and proposed joint development of Pars gas field in the Persian Gulf, said an official at the Japan Federation of Economic Organizations. Oil volumes and prices weren't disclosed. Iran estimates Pars is capable of producing 5.3 bcfd.

India's petroleum ministry and planning commission are mulling refinery expansions instead of grassroots construction.

Allowing capacity expansions at 12 refineries operated by Indian Oil Corp., Hindustan Petroleum, and Sharat Petroleum by 240,000 b/d--excluding about $200 million for new pipelines-will cost about $335 million.

That would hike India's refining capacity to 1.296 million b/d by 1995 and put on hold plans for new refineries at Karnal and Mangalore involving foreign participation.

Guadeloupe regional authorities have rejected an oil refinery project Black Diamond Petroleum Co. of the Virgin Islands wanted to build on the French Caribbean island.

Black Diamond, a group of U.S., English, and Mexican investors, planned a 150,000 b/d refinery to make products for the U.S. market from Venezuelan and Mexican heavy sour crudes.

The U.K. Department of Energy will put 120 blocks up for bids in the 12th exploration licensing round.

Companies have until December to prepare applications, and awards will be made during first half 1991.

The 12th round follows the launch of Britain's first frontier licensing round involving 11 licenses covering 117 blocks. Applications for this round will have a deadline of January or February 1991 (OGJ, Apr. 30, Newsletter).

Most 12th round blocks are in well explored parts of the U.K. offshore. The offer includes 41 blocks in the southern gas basin, 34 in the central North Sea, 21 in Moray Firth, and 17 in the northern North Sea.

Other areas included are Irish Sea/Manx basin (three blocks), East Shetland Platform (one block), English Channel (two blocks), and Caernarvon basin (one block).

Canadian native groups have criticized a federal call for exploration proposals in the western Beaufort Sea.

Inuvialuit Regional Corp. said the Inuvialuit strongly oppose the call. A prime concern is an oil spill on the scale of the Exxon Valdez accident.

Exploration parcels issued 20 years ago expire in 2-3 years, and companies have until Sept. 28 to identify areas of interest. Average drilling cost is $70 million/well, plus a 25% deposit on projected development costs.

Minerals Management Service has issued a call for information and nominations for two Gulf of Mexico lease sales.

A Central Gulf sale is planned for March 1992 and a Western Gulf sale for August 1992.

Sen. Don Nickles (R-Okla.) has asked the Federal Energy Regulatory Commission to determine whether proposed rates for a new pipeline to import Canadian gas into New England will discriminate against U.S. gas producers.

The 369 mile, $582 million Iroquois Gas Transmission System will carry 450 MMcfd when completed in 2 years.

Natural Gas Supply Association has filed a friend-of-the-court brief with the Minnesota Supreme Court opposing St. Paul's franchise fee on parties who sell gas to end users in the city. NGSA said administrative costs would prevent gas producers and marketers from selling directly to end users in St. Paul, and if other cities enact similar rules "producers effectively would be relegated to selling only to pipelines."

Copyright 1990 Oil & Gas Journal. All Rights Reserved.