Oil markets have taken a sudden bullish turn with OPEC's agreement last week to roll over production quotas for all of 1995.
The accord, reached quickly on Nov. 22, the second day of OPEC's ministerial meeting in Bali, freezes the group's output at 24.52 million b/d through yearend 1995. The 12 month freeze was a surprise proposal by Saudi Arabia just as the meeting got under way. After the unanimous agreement was disclosed, oil futures prices jumped in after-hours trading on Nymex, with light crude approaching $18/bbl. Nymex crude for January closed Nov. 21 at $17.56/bbl, up only 10 from Friday's close but erasing a 400 gain on the day as traders' speculation over the duration of the rollover switched from the rumored 12 months to just 6 months.
Still to be resolved at presstime last week was the election of a successor to Subroto as OPEC secretary general. In the running were Venezuela's Alirio Parra, Iran's Kazempour Ardebili, and Nigeria's Rilwanu Lukman.
Republicans' stunning victory in U.S. midterm elections means big changes for the petroleum industry in Washington, D.C.
While nothing is final, Republicans are planning major shifts for the two congressional committees most active on U.S. oil and gas issues. They plan to abolish the merchant marine committee, which oversees offshore leasing and implementation of offshore oil spill insurance regulations, and split its functions between the natural resources and public works committees. They also plan to strip the energy and power subcommittee from the House energy and commerce committee and attach it to the science committee. Rep. Tom Bliley (R-Va.), due to be House energy committee chairman, opposes that.
Congress returns to Washington this week for a special session to vote on expanding the General Agreement on Tariffs and Trade.
The outcome is far from certain. The vote will be close in the Senate, where 60 senators must approve a budget waiver for the pact. Senate Minority Leader Robert Dole (R-Kan.) appears to control GATT's fate. He favors the measure but wants assurance the new World Trade Organization that will result will not usurp U.S. sovereignty. Last week Dole said his support for GATT is conditional upon the Clinton administration dropping objections to a capital gains tax cut. The administration promptly rejected any such linkage.
U.S. petroleum companies are responding to the increasingly competitive business environment in markedly different ways.
Shell plans to jump capital and exploratory spending in 1995 by $500 million from 1994 projected outlays to $3.4 billion. About $1.8 billion is earmarked for E&P, an increase of $400 million from 1994, with oil products and chemicals outlays flat with 1994 at $1.1 billion and $400 million, respectively. Shell Pres. and CEO Philip J. Carroll says the increase is "directed toward profitable growth in a highly competitive business environment."
New Orleans independent Brock Exploration is soliciting bids for sale of the company via cash merger, citing current conditions in the oil and gas industry. The company, with total assets of about $24 million and revenues for the 9 months ended in September of $7.6 million, owns and operates about 700 properties in the U.S. Midcontinent, South, and Rocky Mountains.
Chevron has completed its withdrawal from noncoal minerals operations. The company last week completed sale of its interest in the Lisheen lead/zinc property in Ireland to Ivernia West plc, joint venture partner in the property. In recent years Chevron has pulled cut of platinum, palladium, copper, and silver businesses, generating about $270 million in after tax proceeds. It continues in the coal business with its Pittsburg & Midway Coal Mining Co. unit.
ARCO Chemical is restructuring. The company is creating a chief operating office with worldwide responsibility for each business area, ending the company's regionalized structure. ARCO Chemical says the move helps position it for the increasingly global competitive market.
About $21 billion (Canadian) in new capital is needed the next 20 years to significantly expand Canada's oilsands production.
So says Syncrude Pres. Eric Newell, head of a task force on oilsands strategy preparing a report for release in January. Newell contends such outlays could triple production of bitumen and synthetic crude to 1.2 million b/d within 20 years, boosting output not only for Syncrude and Suncor but also for heavy oil operations in Alberta's Cold Lake and Peace River areas. He compares oilsands outlays with $7 billion needed to produce 125,000 b/d at Hibernia. Syncrude is hiking output to about 200,000 b/d this year and 217,000 b/d in 1995. Suncor also disclosed expansion plans recently (OGJ, Nov. 21, Newsletter).
The winners of the first oil and gas exploration licenses awarded in 25 years in certain prime areas of Canada's Northwest Territories are expected to be disclosed next week.
Exploration in the region was on hold for more than 2 decades in much of the region while Indian land claims were settled. Ottawa put up for bid eight tracts in the southern Northwest Territories around Fort Liard, where winning bid disclosures are imminent. Some infrastructure is in place, notably a gas pipeline from Amoco Canada's Pointed Mountain field and related processing plant to Westcoast's transmission system in British Columbia. Canada's National Energy Board estimates identified gas resources in the area at 450 bcf. Another major area will be opened near Norman Wells oil field, about 95 miles south of the Arctic Circle. After getting a strong response from industry to its call for nominations, Ottawa will select tracts in the 100,000 sq mile area next week and put them up for bid, with winners to he disclosed in April. There remains spare capacity in the Interprovincial oil pipeline from Norman Wells to Alberta.
More foreign capital is pouring into Russia's petroleum sector.
U.S. Export-Import Bank has signed a memorandum of understanding with Gazprom to support sales of at least $750 million in U.S. equipment and services to the Russian integrated gas giant. Under the pact, the bank will provide medium term guarantees of commercial loans for U.S. sales to Gazprom under its regular guarantee program. Repayment security will come from proceeds of hard currency export sales by Gazprom.
World Bank has approved a $110 million loan to help Russia upgrade its environmental protection systems and clean up pollution such as the recent massive oil spill in western Siberia's Komi republic. The bank said the loan, its first environmentally focused loan for Russia, "will help the country to begin to reverse more than 70 years of environmental neglect and replace a fragmented, uncoordinated environmental management system with a more effective, decentralized one."
Further evidence that funding of Russian projects is easing comes from Dana Exploration plc, a London independent involved in development of South Vat-Yoganskoye field in western Siberia. Dana notes its Russian partners in the project, Lukoil and Kogalymneftegaz, secured a $4.5 million loan 'from a Russian government fund established to help finance oil projects.
"This is the first time during recent years that the Russian government has provided serious support to an oil field development with foreign interest," said Sergei Shafranik, chairman of the venture's Russian partnership. "The loan terms are very favorable, as the facility is in hard currency, on long term repayment, and has a low interest rate."
The fund totals $250 million, of which $43.9 million to date has been transferred to ventures by fund managers Bank Imperial and Capital Bank, both Moscow commercial banks. YoganOil was set up with Dana as 50% shareholder with Lukoil and Kogalymneftegaz. Dana completed a $4 million rights issue in September to help fund its development plans. The venture is developing an oil field near giant Vat-Yoganskoye field. New production wells are planned for 1995, along with a 9 km pipeline to tie into the oil export grid.
China continues to make gains in offshore crude production (see related story, p. 32). China National Offshore Oil Corp. (Cnooc) predicts offshore output will top 128,000 b/d this year, an increase of 40,000 b/d from 1993's level.
Cnooc estimates offshore crude production at a record 129,000 b/d the first 10 months of 1994. China has 12 oil fields on line in the South China and Bohai seas, with another four expected to start up in 1995.
Look for more petrochemical capacity to go on stream in the booming Asia market. PT Petrokimia Nusantara Interindo (PENI) plans to increase polyethylene productive capacity at its Merak plant in Indonesia to 400,000 metric tons/year with a new train due on stream by yearend 1996.
BP Chemicals, PENI's major shareholder says the upgrade will double the plant's original design capacity. However, capacity has been boosted to 250,000 tons/year since plant start-up in February 1993. The plant uses BP's gas phase technology and has widened its range of product grades through use of BP's chromium catalysts technology.
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