OGJ NEWSLETTER

OPEC's lack of decisive action and U.S. refinery utilization at nearly 90% is keeping U.S. crude and products futures prices on the skids.

Nymex light sweet crude for January delivery dipped to $18.84/bbl Dec. 9, the lowest level since March 12, when the near term contract settled at $18.83/bbl. "Until OPEC does something that people see as credible or the refiners do something in the way of crude runs, this market isn't going to go up," AP quoted Fred Brill at Pegasus Econometric as saying.

Meantime, Coastal has curtailed crude operations at its 30,400 b/d El Dorado, Kan., refinery and reduced rates at its 109,250 b/d Eagle Point, N.J., plant and 90,250 b/d Corpus Christi refinery. Tight refining margins are blamed (see story, p. 14), and Coastal says it will continually review adjustments. "We need to see a lot more refiners cut hack," said Brill.

Depressed products markets are squeezing oil prices in Europe as well. BP trimmed its maximum pump price for gasoline by 13.6 pence (21.3)/Imp. gal to 2.36 ($3.70) Dec. 10, reflecting falling crude prices and the resurgence of sterling against the dollar.

BP said almost half the 1,500 U.K. filling stations it owns were selling below the maximum price before the cut because of fierce local retail competition, so many customers will not see the full 13.6p cut. In addition, mild weather and economic recession have cut heating oil demand. Brent for January delivery settled at $17.70/bbl Dec. 9, the lowest since March.

"If it were an extremely cold winter and we were burning up lots of products, OPEC might just be able to get away with this level of production," Morgan Stanley's Paul Mlotok told Financial Times.

OPEC agreed to cut production to 24.58 million b/d at its November meeting (OGJ, Dec. 7, Newsletter), but traders have yet to see evidence of these cuts in the market.

EPA has somewhat relaxed its rule governing benzene emissions from refineries. The final rule will permit refiners more cost effective options in meeting regulations than did the original proposal (OGJ, Mar. 2, p. 25). Refiners must comply with the rule in 90 days. EPA may grant them a 2 year waiver if they agree to mitigate emissions occurring during that period. API says although the rule was improved, it will cost industry $2 billion "without achieving that much risk reduction."

Lower interest rates and demand for capital generated an unprecedented level of debt issuance in the U.S. energy industry during 1992, says George Ashur of Chase Securities. Ashur told a group of institutional investors energy related debt for the first 9 months this year totaled $50.2 billion, more than double the level 5 years ago.

He estimates yearend totals for new energy debt issuance will hit $70 billion-nearly 25% of all new industrial debt issued in 1992. The restructuring boom has generated asset sales and business unit spinoffs totaling $14 billion in 1992, Ashur says.

New Paraho's pilot oil shale plant in Rifle, Colo., is producing 15 b/d as part of a Somat test marketing program started in September.

Somat, an oil shale asphalt product, is retorted from Piceance basin shale using New Paraho's process. The pilot could produce enough Somat to pave 150-200 miles/year of roads. Road test strips have been built the past 3 years, and New Paraho plans a first phase test program expected to cost $1.2 million. It should produce enough Somat for 50-60 miles of asphalt road.

PaineWebber cut its 1992 and 1993 international rig count forecasts, but increased its forecasts of the U.S. count for the same periods.

The analyst upped its 1992 prediction to 750 from 675 and its 1993 forecast to 800 from 700, saying the U.S. market is recovering faster than expected due to improvement in gas prices. Baker Hughes reports 914 active rigs in the U.S. the week ended Dec. 4, up 15 from the week prior and a 12% increase from same time last year.

U.S. President George Bush, Mexican President Carlos Salinas de Gortari, and Canadian Prime Minister Brian Mulroney each separately plans to sign the North American Free Trade Agreement Dec. 17. In the U.S., that will launch a fast track process in Congress that precludes amendments and makes it difficult for the Clinton administration to alter the pact.

Alberta's Energy Resources Conservation Board says an inquiry into safety standards and sour gas operations should be complete by June.

A 16 member advisory committee representing ERCB, industry, the public, land developers, and other parties is holding public hearings. The inquiry was touched off by controversy over Canadian Occidental plans to drill sour gas wells on the eastern outskirts of Calgary. ERCB will not rule on the plan until the review is complete. The inquiry's findings could affect many drilling projects in Alberta, where sour oil and gas are common.

A new federal Canadian tax break for investors in small companies will be a boon to oil and gas companies, say industry spokesmen. The incentive, announced Dec. 2 by Ottawa, increases a previous 30% tax break for investment in drilling projects to 100% and is effective immediately.

Investors who buy flow through shares to back exploration programs will get a 100% tax writeoff on the investment. The program will benefit mainly smaller companies because there is a $2 million/company/year spending ceiling on which the tax break is applicable. Small Explorers & Producers Association of Canada says it expects the tax break to trigger drilling of an added 300-500 wells in 1993, and Petroleum Service Association of Canada says the incentive could increase drilling activity by 7 10%.

PSAC General Manager Roger Soucy notes exploration activity is already benefitting from increased natural gas prices, stable oil prices, a lower Canadian dollar, falling interest rates, and changes in Alberta royalties.

Pertamina expects a 50% drop in earnings for fiscal 1992-93, due largely to an increase in imports of light crude from the Middle East.

Pertamina depends heavily on imports mainly because the heavy crudes it produces cannot be processed in local refineries. The country imports about 150,000 b/d of light crude with 110,000 b/d coming from the Middle East, 20,000 b/d from Malaysia, and 20,000 b/d from Australia.

The Aegean Sea oil tanker, which ran aground off Spain Dec. 3 spilling almost 500,000 bbl of crude oil into the Atlantic remained in position Dec. 10, reports Lloyd's of London (see story, p. 24). Lloyd's reports oil had been found in one of the vessel's nine 63,000 bbl capacity tanks.

Bulldozers were being used late last week to open an access route to the tanker from the shore, said Lloyd's.

Oceaneering International's 15,000 b/d Ocean Producer mobile offshore production system (MOPS) will remain on Gombe-Beta field off Gabon under a contract extension signed with Kelt Gombe Marin.

The 78,000 dwt floating production, storage, and offloading system was converted from a tanker under a contract with Amoco last year (see related story, p. 26), and Kelt took over field operations from Amoco Oct. 1.

The contract extension is month to month at a day rate Oceaneering said is "substantially reduced" from the first contract (OGJ, Jan. 20, p. 22).

Hungary's MOL has announced plans to modernize and expand its network of gasoline stations this decade. The MOL-2000 project would cost about $188 million. Hungary has about 1,100 filling stations, of which 195 belong to foreign firms or joint ventures. MOL expects the number of Hungarian gasoline stations to reach 1,500-2,000 by 2000 and is discussing plans to install filling stations in Romania and Ukraine with local partners.

Kazakhstan is accepting competitive bids for rights to explore for and develop reserves in three pre-Caspian depression areas in its first competitive exploration licensing round. Total resources in the three areas are pegged cit more than 35 tcf and 4.6 billion bbl of oil and condensate.

Tender participants have until May 1, 1993, to buy a technical package and submit bids, and Kazakhstan plans to notify winners July 1, 1993.

Meantime, western aid will be necessary to develop resources on the Baltic Sea outer continental shelves of Lithuania, Latvia, and Estonia that are estimated at more than 2.19 billion bbl, reports Vilnius radio report. Of this, the Lithuanian shelf is believed to have 876 million-1.241 billion bbl. There is no commercial production in the offshore area. All of the former Soviet Baltic republics are suffering from severe oil shortages and must now pay world prices for imported Russian oil. Very small oil production reportedly has begun on Poland's Baltic shelf to the southwest. Poland's offshore resources have been estimated at as much as 200 million bbl.