Industry can't rely on Saudi Arabia to act as swing producer to restore oil prices to $18/bbl, says Centre for Global Energy Studies (CGES), London.
The kingdom's 20% budget cut for 1994 (OGJ, Jan. 10, p. 27) signaled its tacit acceptance that low oil prices are here to stay, says CGES.
The primary question is: How will lower oil prices affect Saudi Arabia's trade balance, key to its financial health, in the critical next 5 years?
CGES looked at the prospects for Saudi oil exports to 2000 and found that a swing producer scenario leaves the kingdom with a cumulative budget deficit of $49 billion during 1994-98.
Among other scenarios, one calls for a capacity based quota system adopted pro rata by all OPEC members, and another is based on a rollover of September 1993 quotas, modified to accommodate Iraq. Either of these two scenarios leaves Saudi Arabia essentially maintaining market share with a deficit of only about $15 billion in the same period.
Kuwait looks set to defend its market share as well. On the third anniversary of the end of the Persian Gulf war, Kuwait notes its current production of 2 million b/d is 90% of precrisis output. Current productive capacity is 2.4-2.5 million b/d and headed for 3 million b/d.
Signs mount of the retrenchment caused by sagging oil prices.
Pdvsa's $48.5 billion spending plan for 1993-2002 will have to be reviewed in light of continued weak oil prices, says Venezuela's new Minister of Energy and Mines Erwin Jose Arrieta Valera. He hints Pdvsa's goal of .boosting crude productive capacity to 4 million b/d by 2000 might be scaled down. Because of slumping oil prices, Pdvsa expects value of its exports of crude and products to fall in 1994 by about $1.5 billion from earlier projections, slicing the government's take by about $1 billion. Pdvsa cut its projected 1994 average export price to $11.50/bbl in February from $13.50/bbl in December, compared with average export prices of $14.20 in 1993 and $14.91 in 1992. Oil exports in 1994 are pegged at 2.23 million b/d.
Woodside Petroleum, operator of Australia's Northwest Shelf gas development/LNG export project, is cutting its 1994 operating budget of $270 million (Australian) by 30%. That means cutting 25% of its work force. A management review the past 2 years identified about 300 surplus jobs in Northwest Shelf operations. About 160 employees took severance packages, and the rest switched to other Woodside operations.
However, another review in late 1993 prompted by oil price weakness found that another $100 million cut was needed. Woodside's Wanaea/Cossack field development and LNG export projects won't be affected.
Amoco has alerted employees of corporate restructuring plans intended to reduce costs and improve organizational flexibility and accountability. The restructuring by yearend is expected to cause substantial Amoco employee transfers and a net loss of jobs.
Detailed plans are not expected until summer, but options being studied include reducing corporate staff and replacing each of Amoco's three operating units with a minimally staffed sector executive. Although Amoco last year posted net income of more than $1.8 billion and had the second best return on capital among U.S. majors, more cost cutting is targeted because of low oil prices and financial market indifference to Amoco stock.
ARCO has signed on to ship California heavy crude to markets outside the U.S. It will ship 200,000 bbl of Kern County crude in two tankers to Taiwan and South Korea this month. The shipments came about as DOE is considering lifting the ban on export of Alaskan North Slope (ANS) oil. The granting of export licenses to California heavy crude producers 3 years ago was seen as possibly nudging Washington government closer to lifting the ban on ANS oil exports. ARCO's license, awarded in October 1993, allows it to export as much as 25,000 b/d of California heavy crude. The crude it's shipping comes from Midway-Sunset field and an undisclosed California producer. California producers claim the ANS export ban worsens a crude glut there, depressing prices. Berry Petroleum and Eastex were the first California producers to gain export licenses, in 1991, and have shipped 600,000 bbl to Pacific Rim nations, mainly South Korea.
Unocal has pleaded no contest to three criminal charges involving what may prove to be the biggest petroleum spill in California history.
Unocal stipulated in its plea that it leaked thousands of barrels of a kerosine/diesel mix diluent beneath Guadalupe oil field in San Luis Obispo County and failed to report it during 40 years. The company earlier this month pledged an open ended budget to clean up the spill (OGJ, Mar. 14, p. 36). Unocal will pay $1.5 million in fines, mainly to the county, and create a mandatory training program for its employees on environmental laws. The cleanup is expected to take years and cost tens of millions of dollars. Unocal still will he liable for fines on the specific volumes leaked variously estimated by three independent consultants at 111,000 bbl, 160,000 bbl, and 202,000 bbl. It also faces likely civil suits by state agencies and local environmental groups. As a result of the no contest plea, 33 other charges were dropped, including some against six Unocal employees.
OCS Lease Sale 147 offering tracts in the central Gulf of Mexico Mar. 30 could be the biggest sale off the U.S. in 5 years because of enthusiasm over the gulf's sizzling subsalt play. That outlook hinges on the notion that 5 year leases acquired in large central gulf sales of 1988-90 began expiring last year, before Phillips and partners disclosed their Mahogany subsalt discovery on Ship Shoal Block 349. Now that Mahogany's results are known, the interest is great in tracts with subsalt potential passed over or dropped that are being reoffered. Undeveloped tracts leased in 1990 will be reoffered at the central gulf sale in 1995, leading many companies to conclude that this year and next are the last, best chances to acquire a subsalt leasehold in the gulf. What's more, competition for subsalt acreage could he greater next year, when the results of Phillips' second subsalt well in the, gulf, on South Timbalier Block 260, are known. The Phillips group reportedly plans an announcement about the Block 260 wildcat Mar. 31.
New Zealand is trying to rejuvenate interest in North Island E&P.
The government will release new onshore and offshore petroleum exploration licenses in the Taranaki basin in the third quarter. That will be followed by similar releases in the East Coast basin. Permits may be offered either through standard work program bidding, cash bonus bidding-reserved for permits of outstanding potential-or a frontier offering in areas of little interest or competition for a permit. Meantime, the government disclosed a new royalty scheme for petroleum production: the higher of a 5% ad valorem royalty charged against net sales revenue from a permit or a 20% accounting profits royalty charged against development profits. And the government is trying to spur exploration by decontrolling natural gas prices, certain to rise as Maui field reserves are depleted the next 10 years.
Nova Corp. unit Novacorp International is interested in acquiring a stake and operating rights in Pakistan's natural gas pipeline system when it is privatized. Nova made a similar deal when Argentina privatized its pipeline system. The company acquired a 16% interest in a group that took a 70% interest in the Argentine system. British Gas also is reported to be involved in privatization talks in Pakistan. Novacorp also is studying possible equity investments in Australia, Indonesia, China, and Bolivia.
Financing for rehabilitation of Russia's natural gas pipeline network is in place. Italy's Mediocredito Centrale and Banca Commerciale Italians and the U.K.'s West Merchant Bank will lend Russia's Gazprom $1.636 billion for a 13 year term for the work, which will be conducted by Italy's Nuovo Pignone under a $1.212 billion contract. Gazprom will finance the loan through sales to Nuovo Pignone affiliate Snam via Gazexport of an additional 192.5 bcf/year for 20 years beginning in 1995-96. Nuovo Pignone is being acquired by a group led by GE and Dresser (OGJ, Jan. 3, p. 28).
Greece plans to construct or revamp six gas processing plants to accommodate a surge in imports of Russian natural gas, expected to jump to 49 bcf in 1996 from 21 bcf in 1995. Greece signed a series of take or pay gas supply deals with the former Soviet Union during the 1980s that have been taken on by Russia. Plans call for revamping two plants at Keratsini, near Piraeus, and two others at Laurion, 70 km south of Athens. Construction will begin immediately on the two new plants, to be built in western Thrace in Northeast Greece and in the city of Cavalla. Work that was halted in 1991 because of the collapse of the Soviet Union (OGJ, May 20, 1991, p. 31) resumed last year on laying of a 200 MMcfd, $1.3 billion gas pipeline from Russia via Bulgaria to Greece, with deliveries to begin in 1995.
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
