Newsletter

• U.S. Industry Scoreboard 11/9 [43,903 bytes]

On Oct. 31, Baghdad again banned U.N. weapons inspectors from its sites. In a now familiar routine, Baghdad halted the cataloging of Saddam's arsenal, which the U.N. requires before it will lift sanctions against Iraq. Baghdad said that inspections could not resume until sanctions are lifted. The U.S. again warned Iraq it was losing patience, U.S. and U.K. diplomats began to hint about military strikes, and Russia voiced opposition to the use of force against Iraq.

For some years, such situations have regularly buoyed oil prices, but this time, prices barely flickered. Dated Brent crude closed at $12.34/bbl in London trading Nov. 2, having topped $13/bbl during this first day of trading after Saddam's announcement. By Nov. 3's close, however, dated Brent stood at $11.94/bbl, while December Brent stood at $12.94/bbl, down 45¢ on the day.

Weak oil prices have squeezed Canadian firms' third quarter profits and drilling budgets. A sampling of Canadian petroleum companies' earnings for thethird quarter follows. Results for 1998 are shown first, in millions of Canadian dollars (except where noted), followed by 1997 results, with losses shown in parentheses: Imperial Oil 196 vs. 201, Amoco Canada (U.S.$) 35 vs. 61, PanCanadian 16 vs. 57, Petro-Canada 15 vs. 73, Alberta Energy 9 vs. 9, Canadian Oil Sands Trust 6 vs. 14.6, Chieftain (U.S.$) (2.47) vs. 0.04, Westcoast Energy (6) vs. (17), and CanOxy (19) vs. 31. Third quarter results for some U.S. oil firms were tallied earlier (OGJ, Nov. 2, 1998, Newsletter). First half and second quarter results for U.S. and Canadian firms are detailed in a story on p. 38 and table on pp. 40-41.

Canadian drilling this year and in 1999 will fall well short of 1997 levels of more than 16,000 completions, industry groups forecast.

The Canadian Association of Drilling Contractors (Caodc) now forecasts 10,200 well completions this year and 10,542 in 1999, while Petroleum Services Association of Canada (PSAC) projects 10,500 wells this year and 9,885 in 1999.

PSAC said 10,000 new wells is a 10-year average, but the decline in drilling will result in 2,000 fewer jobs in the 18,000-job Canadian service sector.

Caodc said the forecast drilling totals are about average, and most companies are expected to adjust to the situation. Industry surveys indicate demand for natural gas will be high. About 56% of drilling in 1999 will target gas, compared with 51% this year and 35% in 1997.

Oil companies' falling profits and trimmed spending plans are having a knock-on effect for the service and supply sector.

Global Marine's Summary of Current Offshore Rig Economics fell to 61.1% in September from 67.6% in August-the biggest month-to-month drop since June 1986. "A sharp fall in day rates for jack up rigs led more moderate decreases in rates for semisubmersibles and drillships," said Global Marine. CEO Bob Rose said, "The offshore drilling business continues to suffer from low oil prices, and shallow-water drilling markets worldwide have been particularly hard-hit. Day rates for some jack ups drilling on the continental shelf in the U.S. Gulf of Mexico have fallen below $20,000, which is only a few thousand dollars above daily cash operating costs."

Financial results for U.S. service companies are also reflecting the downturn, although shut-ins caused by a hurricane in the Gulf of Mexico were another factor. Except where noted, results shown are for the third quarter, in millions of dollars, with 1998 first: Halliburton (before special charges related to its merger with Dresser) 195 vs. 218, Parker Drilling (fourth fiscal quarter ended Aug. 31) 123.3 vs. 95.5, Santa Fe International 72.7 vs. 59.3, Weatherford International 42.8 vs. 53.7, Petroleum Geo-Services 40.6 vs. 28.6, Noble Drilling 32.6 vs. 33.5, Nabors Industries 28.5 vs. 42.1, National Oilwell 21.6 vs. 8.8, Offshore Logistics 10 vs. 8.1, Pool Energy Services 5.4 vs. 8.4, UTI Energy 2.1 vs. 3.9, and Transcoastal Marine Services 1 vs. 2.

Meanwhile, service firms' woes apparently are prompting more consolidation in the sector.

Parker Drilling and Superior Energy Services have agreed to merge (see Industry Briefs, p. 46). Parker CEO Robert L. Parker Jr. says the deal would expand his firm's premium rental tool business in deepwater areas and "continue ourellipsestrategy to expand this high-margin side of our business."

Meanwhile, Nabors Industries has made a cash and stock offer for Pool Energy Services. Nabors says the offer values Pool at $14.72/share.

The move comes just weeks after Nabors announced its planned acquisition of Bayard Drilling (OGJ, Oct. 26, 1998, Newsletter).

Nabors Chairman Eugene Isenberg said, "We are determined to effect a combination of Nabors and Pool. We believe that our two companies would be a superb fit." Pool evidently disagrees. Pool Chairman J.T. Jongebloed said, in a letter to Isenberg, "We are not interested in pursuing the discussions with your companyellipseThis decision was unanimous and unequivocal."

"We are surprised that Pool's board rejected our proposal without holding any discussions with us," said Isenberg. "We would consider offering a higher price, if Pool can demonstrate additional value," he added.

A down market also creates opportunities, especially for contrarians.

Coastal Oil & Gas has made a big upstream acquisition in the Rocky Mountains from Conoco. Coastal purchased assets in northeastern Utah's Uinta basin and western Colorado's Piceance basin, including interests in 21 producing oil and gas fields and about 312,500 acres of producing and non-producing leasehold interests. The leaseholds include 106,000 acres of prospective deep rights under and adjoining the Natural Buttes Federal Exploratory Unit, which Coastal operates. The deal includes Conoco's 60 MMcfd Dragon Trail gas processing plant and two gas gathering systems. Although the firms declined to place a value on the properties, Stuart Wagner, a natural gas analyst with Petrie Parkman in Denver, said the deal was worth slightly less than $200 million.

Coastal Chairman David A. Arledge said the deal would enable Coastal "(to) leverage both our geological expertise and our drilling programs to expand our exploration and production core area in the Rockies to an adjoining basin in a prudent manner." Arledge estimates the acquisition gives Coastal 500 potentially productive drilling locations. Contrary to industry trends, Coastal boosted its E&P budget by $100 million in the third quarter.

Plans for another deepwater Gulf of Mexico port have been revived, after a long hibernation (OGJ, Aug. 21, 1995, p. 22). Blue Dolphin Energy has completed engineering and commercial evaluation of its proposed Petroport project, "with favorable results."

The facility has been designed and will be located 45 miles off Texas in about 120 ft of water. "The design incorporates subsea salt caverns for the storage of crude oil and refined products, and three single-point mooring buoys to enable offloading of two vessels simultaneously," said Blue Dolphin. Capacity will be 1.25 million b/d. Crude will be delivered to shore by pipeline.

Petroport Pres. Mike Jacobson said weak oil prices would benefit the project by hiking demand and reducing U.S. production, thus boosting imports.

The Caspian Pipeline Consortium (CPC) has received approval from Kazakhstan on its proposed pipeline from Tengiz field in western Kazakhstan to Novorossiisk, Russia (OGJ, Oct. 26, 1998, Newsletter).

Although Russian approval is still pending, CPC member and Tengiz operator Chevron said the group "has received official assurances of an imminent green light from the Russian government for its final approval."

Japan's economic woes are prompting more reorganization and rationalization in its petroleum sector.

Mitsubishi Oil, which plans to merge with Nippon Oil (Nisseki) in April, will split off its refining operations and integrate them with Nippon Petroleum Refining, a Nisseki subsidiary, 1 year after the new company is formed (OGJ, Nov. 2, 1998, p. 42). This effort will facilitate rationalization of the refining operations in both groups.

The new refining company will manage four refineries: the 385,000 b/d Negishi plant, the 75,000 b/d Kawasaki plant, the 230,000 b/d Mizushima plant, and the 170,000 b/d Muronan plant. A Mitsubishi Oil source said the two firms are also considering closing down the Kawasaki plant, although he added that a decision is "unlikely to be made in the near future."

Exxon's Japanese marketing units, Esso Sekiyu KK and General Sekiyu KK, each will cut about 300 jobs by spring 1999, pruning their combined work force by 30%. The restructuring is in line with their agreement a year ago to gradually integrate business operations.

Esso Sekiyu had about 900 staff at the end of September, while General Sekiyu employed 1,200. The firms also are considering integrating branches as well as head offices. Details of the plan will be decided shortly.

Japan's marketers have been hit hard by a protracted market slump. Among major firms, Mobil Industries late last year offered early retirement with the goal of cutting 300 staff, or 30% of its payroll.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.