OGJ NEWSLETTER

Oil prices continue to show surprising strength. Crude prices teased $18/bbl last week with light, sweet crude for June delivery climbing as high as $17.90/bbl on Nymex May 11 before closing at $17.85/bbl. The highest prices of the year come at what is typically a time of lower prices. Most analysts peg increased prices to civil unrest in Nigeria and Yemen as well as more concrete signs of economic recovery (see editorial, p. 13).

And OPEC production fell a striking 350,000 b/d in April, mainly due to a drop in output from Iran, reports Middle East Economic Survey (MEES). April production of 24.64 million b/d compares with March's 24.99 million h/d and is only 120,000 b/d more than the cartel's output ceiling. Output from Iran slipped 285,000 b/d, and Nigerian production fell 80,000 b/d. MEES says a pattern has emerged in Iranian production, with high output for a month or two followed by lower production the next month or two.

Saudi Aramco plans to mothball heavy and medium crude production equipment in offshore fields in a bid to cut maintenance costs.

Aramco says the country's surplus productive capacity will be 1.5 million b/d by yearend. MEES reports Aramco is on target to achieve sustainable production capacity of 10 million b/d by yearend, although the kingdom's OPEC quota is 8 million b/d of oil. Hardest hit is likely to he Zuluf field, which produces about 1.2 million b/d of Arab medium crude. MEES says two gas/oil separators with 500,000 b/d total capacity will be mothballed.

Contrary to some media reports, Chevron is not curtailing production at its giant Tengiz project in Kazakhstan. Chevron Overseas' Jonathan Lifa says pipeline talks have not been suspended, and no reductions have been made in production operations. Lifa says Chevron cut by 5% its 1994 Tengiz capital expenditures budget due to increased costs and overall low crude prices, but "frankly it's not much of a dent in the overall scheme of things over there." The reduction affects only infrastructure projects, and Lifa says while some Chevron employees are being repatriated to work on other projects, mainly contract employees are affected.

The Czech government has again delayed a decision on whether to allow a western combine to invest in Kralupy and Litvinov refineries.

The group, including Royal Dutch/Shell, Agip, Conoco, and Total, still was awaiting a decision at presstime last week. The group has increased its valuation of the refineries to $180 million from $110 million, a Conoco official says, and expects a total $520 million to be spent in 5 years on safety and environmental improvements and introduction of low-lead gasoline production. The combine's bid is for a 49% stake in the two refineries and was made at government's request (OGJ, Apr. 18, Newsletter). A crude line from Ingolstadt, Germany, to the refineries will be partly funded by the group, which will provide throughput guarantees to help raise as much as $150 million, one third the estimated capital cost of the pipeline.

BHP Petroleum's DH-7X well, the fourth appraisal well in Dai Hung field off Viet Nam, flowed at a rate of 3,300 b/d of 39 gravity oil and 3.3 MMcfd of gas from one of several oil bearing zones in a carbonate and clastic reservoir section below 2,300 m. The well was drilled to 3,256 m by the Aleutian Key semisubmersible rig. The rig will be moved into the southern part of the field to drill the DH-8X appraisal well. BHP plans to start production from Dai Hung this October using a refurbished semisubmersible production vessel towed from the North Sea (OGJ, Feb. 21, p. 32).

Saudi Arabia plans to formally ask Japan to resume a stalled joint project to refine Saudi crude in Japan, Nihon Keizai Shimbun reports. The plan calls for building or buying three refineries in Japan to refine 450,000 b/d of Saudi crude for sale in Japan. The project came to a standstill last November over a dispute between partners Nippon Oil and Japan Energy.

Nigeria's cash flow problems continue to snowball.

The government's failure to pay about $800 million it owes to oil companies operating in Nigeria is forcing a slowdown of E&P activities.

OPEC News Agency (Opecna) reports Shell Petroleum Development, which produces about 55% of Nigeria's crude, has been borrowing money since January to pay its more than 5,000 workers. Civil unrest in Nigeria has forced production cuts across the country, further crimping government revenues (OGJ, May 2, p. 46). But Shell's luck appears to be changing. Oil production from Uzere, Escravos Beach, Saghara, and Otumara fields in western Nigeria was returning to normal last week after protesters accepted a Shell promise to complete community assistance schemes quickly. Now Shell negotiators are focusing on eastern Nigeria, where production from Etelebou, Adibawa, Ubie, Enwhe, and Kolo Creek fields still is disrupted.

Production of petroleum products has resumed at the old Port Harcourt refinery in southern Nigeria, easing the country's fuel shortage woes.

News Agency of Nigeria says as of May 2 the refinery was operating at 71% capacity, with throughput of about 43,200 b/d. Nigeria hoped to have the refinery fully out of mothballs by June (OGJ, May 9, Newsletter).

Exports of boiler fuel Orimulsion could yield Venezuela an estimated $500 million/year by 2000, says former Energy & Mines Minister Humberto Calderon Berti. Venezuela has installed productive capacity of about 5.2 million tons/year, which would need to increase to 20 million tons/year by 2000 based on current prices of about $26/ton, Berti says. Development of the heavy crude, water, and surfactant mixture should receive a boost from a recent decision by Europe's Customs Cooperation Council labeling Orimulsion a natural bitumen, virtually exempting it from excise duties.

Chevron Overseas and Venezuela's Maraven have agreed to study the feasibility of developing heavy crude production at Boscan field in Zulia state. The joint venture sees a first stage of producing about 30,000 b/d of Boscan 100 gravity crude to be processed in Chevron asphalt plants in the U.S. Second stage includes increasing production to 60,000 b/d and upgrading Maraven's Bajo Grande refinery to process heavy crude. Cash flow from the first stage will be used to finance investment in the second stage. Boscan field was operated by Chevron prior to the 1976 nationalization of Venezuela's oil industry and has estimated reserves of 1.7 billion bbl.

Colombia is on track to become Latin America's third largest oil producer behind Venezuela and Mexico, reports Caracas newspaper El Nacional. Estimates put Colombia production at 700,000-800,000 b/d by the mid-1990s with exports possibly reaching 500,000 b/d. Discovery of Cano Limon area fields in the 1980s boosted production to 300,000 b/d from 150,000 b/d and marked the beginning of Colombia's oil production climb. Development of Cusiana is expected to add 400,000-500,000 b/d of production. The paper notes Colombia's output could eventually hit 1 million b/d.

Colombia plans to bolster its downstream sector with a new investment policy. The plan includes granting financial support to private investors and securing supplies of needed materials. The Ministry of Mines and Energy is to have contract conditions defined soon.

Petro-Canada wants Terra Nova oil field southeast of Hibernia off Newfoundland in production by 2000. Petro-Canada CEO Jim Stanford estimates Terra Nova development will cost less than $2 billion (Canadian).

The field, in deeper water than Hibernia, could be produced from a floating platform. A recent cost study estimated Hibernia is about $1 billion over its original $5.2 billion cost estimate (OGJ, May 2, p. 42).

That study is being reviewed by Hibernia partners. Stanford says Petro-Canada wants to reduce its Terra Nova interest to about 30% from 49% and wants to reduce its 25% interest in Hibernia. Stanford says Hibernia is just the beginning of Grand Banks oil development, and he expects to see Terra Nova come on stream right after Hibernia.

Chevron, Texaco, and Anschutz have committed to send an average of 110,000 b/d of oil for 10 years with Pacific Pipeline System, which plans a $150 million, 130,000 b/d pipeline from Central California to Los Angeles refineries. The proposed pipeline will be a key link for the offshore Point Arguello project, operated by Chevron, and San Joaquin Valley oil producers via a spur to the All American Pipeline from Texaco's terminal at Emidio, Calif. The pipeline will ease a bottleneck for OCS and SJV producers to L.A. refineries created by earthquake damage to Four Corners' Line No. 1 and restrictions on OCS producers' use of tankers. Pacific submitted its plans to California Public Utilities Commission May 5. Pacific hopes to start construction by March 1995 and complete the 130 mile, 20 in. line by March 1996. Anschutz will hold 85% interest, Chevron 10%, and Texaco 5%.