WATCHING WASHINGTON MIDDLE EAST VISITORS

with Patrick Crow U.S. independents and Middle East producers find themselves on opposite sides of the fence on oil prices. Independents want oil prices high enough to sustain a healthy level of U.S. drilling. But Middle East producers want prices low enough to discourage conservation or development of alternative fuels that would diminish their market. However, a group of U.S. independents visiting the Middle East also found they have a major point in common with foreign producers. All

March 26, 1990

3 min read

U.S. independents and Middle East producers find themselves on opposite sides of the fence on oil prices.

Independents want oil prices high enough to sustain a healthy level of U.S. drilling. But Middle East producers want prices low enough to discourage conservation or development of alternative fuels that would diminish their market.

However, a group of U.S. independents visiting the Middle East also found they have a major point in common with foreign producers. All depend heavily on the price of crude.

IPAA DELEGATION

An Independent Petroleum Association of America delegation recently returned from a 12 day trip to Saudi Arabia, Iraq, and North Yemen. The trip was prompted by an invitation from Saudi Petroleum Minister Hisham Mohadin Nazer, who addressed IPAA's annual meeting last fall.

The delegation included 13 IPAA members, including the current and several former chairmen. Also along was Gary Nicholson, president and CEO of LTV Energy Products Co., Garland, Tex., and president-elect of the Petroleum Equipment Suppliers Association.

Harold B. Scoggins, IPAA president, said the trip was informative in many ways.

He said Middle East officials they met were well acquainted with international oil companies but knew almost nothing about U.S. independents.

The U.S. group was impressed by the reserves Saudi Arabia and Iraq have found but not booked. Heavy, sour, or remote crude oil discoveries are simply plugged.

The delegation also was surprised at the lack of haze, odors, or flares at Saudi plants and refineries. "They will do whatever it takes to make sure their plants are the most environmentally safe facilities anywhere," Scoggins said.

It was apparent the Saudis and Iraqis will not invest to increase productive capacity until more demand develops. That's a business decision by the Saudis and an economic reality for Iraq, which is saddled with war debts.

The U.S. oilmen learned their view of production costs is different from that of the Saudis. Scoggins said, "While their direct cost is minimal because it requires so few wells to sustain their producing capacity of 8 million b/d, the cost of operating the entire kingdom determines the cost of production and therefore their break-even price per barrel."

Saudi and Iraqi officials said they want to keep the price of their oil exports low enough to discourage conservation, alternative fuels development, and a U.S. oil import fee. But they also are concerned that a sharp U.S. production decline might cause a spike in world oil prices.

The independents told the foreign producers U.S. oilmen need a stable price to sustain a healthy level of drilling, and the current price will not do that.

Both sides agreed that a price yo-yo is bad for everybody.

INCIDENT IN IRAQ

The American oilmen were a bit uncomfortable in Iraq and North Yemen because both were armed camps.

For example, when an Iraqi airport guard noticed Scoggins talking into a small tape recorder he concluded the recorder was a miniature camera and Scoggins was a spy.

Scoggins was seized and detained until his companions located an English-speaking cleaning woman and an airline employee who together translated an explanation to the guards.

Scoggins and his tape recorder were released, batteries not included.