US INDUSTRY SCOREBOARD 3/13 - Oil prices are showing the greatest volatility since the 1990-91 Persian Gulf crisis amid heavy US pressure on key OPEC nations and conflicting signals from OPEC ministers.
NYMEX crude for April delivery rocketed $1.95 to $34.13/bbl at closing Mar. 8 in response to traders' concerns that some OPEC members-Iran, Libya, and Algeria-oppose hiking production at the Mar. 27 meeting in Vienna.
The next day, that same contract collapsed by $2.87-the biggest 1 day plunge in oil prices since the Persian Gulf war started-after Iran and Saudi Arabia agreed that a production boost was needed.
Fresh from a tour of major exporting nations, US Energy Sec. Bill Richardson last week predicted OPEC will undertake "substantial and timely increases in production" at the Mar. 27 meeting. President Clinton, meanwhile, has urged OPEC to seek stable oil prices. He said producing countries should realize sharply higher oil prices will reduce demand and thus their income. Clinton said US consumers shouldn't wish for a return to $10-12/bbl oil, either. "That puts you in this rollercoaster environment, which is very destabilizing to the producing countries and not particularly good for our economy. We need stable prices at a lower level, and that's what we're working for."
Separately, Richardson says the White House will make recommendations later this month on how to counteract the national security threat posed by rising oil imports. He hopes the report will contain incentives to hike US production and notes administration plans to establish an "early warning system" to alert consuming nations to imminent oil price spikes.
Richardson told a congressional committee that a proposal to release SPR oil into the market still is alive. The White House is considering the plan, under which oil firms would take SPR oil now and replace it with slightly greater volumes later. But Sen. Frank Murkowski (R-Alas.) predicts neither the SPR swap nor increased OPEC output could put oil on the market quickly enough to avert higher gasoline prices this summer. And Sen. Charles Schumer (D-NY) introduced a resolution urging the administration to sell or swap SPR crude. He said OPEC is unlikely to raise production enough to prevent gasoline price hikes. He said, "If the US releases the reserve through swaps, other OPEC producers, fearing that the last days of sky-high oil prices are near an end, will fudge on their quotas and send oil prices into a downward spiral."
Meanwhile, EIA warns the world oil supply shortfall could push US retail gasoline prices to $1.80/gal this summer. EIA said, "US wholesale and retail gasoline prices are poised to surge to unprecedented levels before spring is out. It is becoming increasingly apparent that, so far as gasoline markets are concerned, the US is moving into uncharted territory." EIA pegged the average US retail price at $1.42/gal in early March, the highest in a decade.
Washington still likes to swing the sanctions club.
US congressmen are seeking cosponsors on letters urging Clinton to block the initial public offering of PetroChina Co. Ltd., which has asked the US SEC to permit listing of its stock on the New York Stock Exchange (OGJ, Mar. 6, 2000, Newsletter). The congressmen contend PetroChina would use some of the funds for its operations in Sudan, which is under US sanctions for alleged human rights violations and sponsorship of terrorism (OGJ, Feb. 28, 2000, p. 32). In addition, the US AFL-CIO charged, "This PetroChina IPO has many risky financial holes, and they are covered in an intricate patchwork of human rights and environmental violations." But Chinese officials assure PetroChina would not include any of its parent's foreign assets.
Talisman Energy-already involved in a controversial oil project in Sudan-says it is looking for new oil development prospects in the Middle East, including Iraq. The company said, however, that it would not sign any oil deals with Iraq until UN sanctions are lifted. Talisman CEO Jim Buckee says Talisman is very conscious of aligning itself with both the UN and US.
Talisman also says it is evaluating potential projects in Syria, Abu Dhabi, Qatar, and Iran. Talisman expects to produce 400,000 boe/d this year from operations in Canada, the North Sea, Indonesia, and Sudan.
Consolidation and restructuring of Canadian operations continue.
Conoco Canada has acquired a midstream package from Petro-Canada for about $300 million (Can.). Included are a 92% operating interest in the 2.4 bcfd Empress gas processing plant near Medicine Hat, Alta.; the 580-mile Petroleum Transmission Co. pipeline from Empress, Alta., to Winnipeg; six associated pipeline terminals; and a storage facility.
Petro-Canada also agreed to sell three Western Canada conventional oil operations, with combined production of 5,500 boe/d, to Renaissance Energy for about $230 million. Sale of the Pembina, Boundary Lake, and Cactus Lake properties, along with its NGL operation "is part of [Petro-Canada's] strategy for the disposition of our Western Canadian noncore assets, enabling us to narrow our focus on our four core businesses," said Pres. and CEO Ron Brenneman. Petro-Canada plans to focus on natural gas, the Grand Banks off Newfoundland, and its share in Syncrude Canada's Alberta oilsands plant.
In another deal, BP Amoco and Chevron Canada have formed a gas gathering-processing partnership in the greater Kaybob area of Alberta, to be called Central Alberta Midstream (CAM). The partnership's assets-in which CAM will hold an average working interest ownership of 73%-include the BP Amoco-operated Kaybob Amalgamated and West Whitecourt gas plants, the Chevron-operated Kaybob South Unit No. 3 gas plant, and associated gathering lines. Total capacity of the three plants is about 1.5 bcfd.
TransCanada PipeLines plans to buy back the publicly owned part of its limited partnership, TransCanada Gas Processing, so that it can be included in a $3 billion sale of TransCanada assets now under way. Public shares in the unit would be worth $68.3 million. TransCanada has a 39% interest and manages the operation.
And Suncor Energy intends to sell its remaining conventional oil properties in Alberta for up to $200 million, so it can focus on oilsands and gas production. It produces 9,500 b/d in northwestern Alberta. Suncor plans to spend about $2.75 billion to quadruple its existing oilsands output by 2008.
Acquisition action continues south of the Canadian border as well.
In a move that will boost its output by 36%, Oxy has agreed to buy Altura Energy-Texas' largest oil producer-from BP Amoco and Shell E&P for $3.6 billion.
And Shell E&P agreed to sell its 80% stake in Shell CO2 Co. Ltd. to Kinder Morgan Energy Partners for $185.5 million.
Meanwhile, BP Amoco and ARCO have asked a federal judge to overrule US government objections to their merger, claiming the deal will boost industry competition in and outside the US. In papers filed last week in a California federal court, the two firms accused the Federal Trade Commission of making "a fatally flawed attack" on the merger bid, ignoring legal standards and the FTC's own guidelines. A 7-day hearing on FTC's request for an injunction against the merger is to begin Mar. 20. There is no hint in court papers of any settlement talks between the firms and federal officials.
Meanwhile, in an effort to win FTC approval of their proposed merger, the two companies reportedly are offering to sell ARCO's Alaskan assets with 324,000 b/d of production capacity. That would be a major concession but would avoid a lengthy court battle with FTC, which already has sued to block the merger. However, state officials in California, Oregon, and Washington joined the FTC in arguing the new company would still control most supplies of Alaskan crude to West Coast refineries and could hike gasoline prices.
Corporate attorneys say the FTC's own guidelines-when properly applied-show the two companies don't compete on the West Coast, because BP Amoco sells Alaska crude in that market, while ARCO furnishes crude to its own refineries and sells only refined products.
IPAA has a new president. Barry Russell, IPAA vice-president and a 20-year veteran of its staff, will replace Gil Thurm. Thurm, who joined IPAA in November 1997, resigned last week.
The US Supreme Court has ruled against a Washington state law that regulates oil tanker traffic off its coast. The US Department of Justice and oil firms had challenged the law as an infringement of the federal government's power to control interstate commerce. The court said the US government's tanker regulatory system precludes states from enacting more-stringent rules.
The opinion voided four of the state's 15 disputed rules, and ordered a lower court to reexamine the other 11 to determine if they were needed due to the peculiarities of navigating Puget Sound.