OGJ NEWSLETTER

June 19, 1995
One of the world's riskiest investment climates may finally look more prospective. Russia's Duma, the lower chamber of parliament. has adopted key production sharing legislation. giving the go ahead to multibillion dollar oil and gas investments. "This is the first law in our history that creates the legal basis for attracting foreign investment to the most effective sector of Russian industry," said Grigory Yavlinsky, leader of the liberal Yabloko faction.

One of the world's riskiest investment climates may finally look more prospective. Russia's Duma, the lower chamber of parliament. has adopted key production sharing legislation. giving the go ahead to multibillion dollar oil and gas investments. "This is the first law in our history that creates the legal basis for attracting foreign investment to the most effective sector of Russian industry," said Grigory Yavlinsky, leader of the liberal Yabloko faction.

A presidential decree signed in December 1992 has many provisions of the law and has served as a basis for oil and gas negotiations until now. Lack of legislation has kept huge development projects like Sakhalin I, Sakhalin II, and Priobskoye on perpetual hold.

The law awaits approval from the Federation Council upper chamber and a signature from President Boris Yeltsin, expected without difficulty.

Modest growth in petroleum products supplied to the U.S. market continues. API says U.S. products demand in May rose 1.3% from last year to an average 17,317,000 h/d. Deliveries of gasoline, distillate, and jet fuel were up, but residual fuel deliveries fell 22% because more natural gas is being used at power plants. Gasoline deliveries increased 5.2%, or about 390,000 b/d, from a year ago. API says so far this year "the data show a surprising jump in deliveries of 4%, a rate not experienced for any 5 month period in over 8 years."

An improved economy and good driving weather contributed to the demand increase. With the introduction of reformulated gasoline (RFG) in January, the grades of gasoline have multiplied, adding complexity to product distribution.

RFG regular accounts for 16% of the market, RFG midgrade 4%, and RFG premium 7%. Conventional regular has 45% of the market, conventional midgrade 7%, and conventional premium 12%. Regular oxygenated gasoline represents 6% of the market. The remaining 3% is unaccounted for. API says U.S. gasoline supplies appear adequate for the summer driving season, based on U.S. refinery capability, existing stocks, and import supplies. Inventories of gasoline and blending components were 209 million bbl at the end of May.

U.S. crude production fell slightly to 6,590,000 b/d as production dipped in Alaska, and imports of crude and products were down nearly 4% at 8,796,000 b/d. Refineries operated at 93.6% of capacity.

McFarland Energy, Santa Fe Springs, Calif.. reported record earnings of more than $10 million in first quarter 1995, based partly on a jump in the price it receives for California heavy crude oil of 46% to $13.14/bbl.

The company points to the narrowing price spread between California heavy oil and WTI. McFarland believes the reduced differential "will soon become permanent when Congress finalizes action lifting the ban on the export of Alaskan oil later this year." California heavy crude is selling for $15/bbl, about $3/bbl more than the post Persian Gulf war average.

While TransTexas Gas Corp., Houston, reported a net loss of $4 million for its third quarter ended Apr. 30, it has mitigated the effect of a 34% drop in natural gas prices with a hedging program. The company hedged the price of 60% of its gas production at $1.72/MMBTU for 1 year starting this month, reducing exposure to future gas price declines. Company Pres. Arnold Brackenridge noted if the hedge had been in place during the third quarter, results would have been improved by almost $6 million.

U.S. gas market hubs continue to proliferate.

Units of NGC Corp., Nicor, Pacific Enterprises, and National Fuel have formed Enerchange LLC to develop, administer and operate natural gas market area hubs. Enerchange, which succeeds and expands services previously offered by NGC unit Hub Services, will assume the latter's role in managing the Chicago Hub for Nicer unit Northern Illinois Gas, the Ellisburg-Leidy Hub Northeast for National Fuel, and the California Energy Hub for Pacific Enterprises' Southern California Gas unit. In 1994 the three hubs moved about 36 bcf of gas.

Enerchange also plans to develop and promote an electronic trading system and act as a market maker for its hubs.

Mesa Inc. has scrapped plans to auction its leases in giant Hugoton gas field because no adequate offers were received. Industry analysts say the company had hoped to receive $1 billion for the Kansas properties, but the highest offer was about $750 million, or about $.63/Mcf equivalent.

Mesa Chairman Boone Pickens says the company will continue to pursue a total or partial Hugoton property sale. Mesa has $1.2 billion debt and reported a first quarter 1995 loss of $7.9 million. Mesa has hired Lehman Bros. as financial advisor to assist in the evaluation of available financing and asset sale options.

Sun Co. will undergo extensive operational and financial restructuring that Chairman Robert H. Campbell says will significantly improve the company's competitive position. Operational changes include savings of $110 million/year due mainly to reduction of 800 staff and support positions and restructuring the company into eight business units plus a holding company and a service company. Financial moves include the sale of Sun's 55% stake in Suncor, yielding proceeds of $770 million, reduction of Sun's debt by more than $500 million; a cut in the common stock dividend; and a stock buyback plan.

The last tanker carrying Iranian crude for a U.S. buyer was loaded June 6.

President Clinton's ban on U.S. investment with Iran has put an end to the $4 billion/year oil trade between the two countries.

U.S. firms accounted for more than a quarter of Iran's total oil exports of 2.5 million b/d, although the oil could not be imported into the U.S. Hojjatollah Ghanimi-Fard, director of international affairs at National Iranian Oil Co. (NIOC) says the loss of U.S. business won't harm NIOC's marketing efforts or the price of its oil exports, noting all its crude is sold through the end of July.

Firms can apply for a special license to lift Iranian oil for 60 days after the June 6 effective date, but Ghanimi-Fard says no U.S. firms have approached NIOC with requests. U.S. firms increased liftings to 740,000 b/d in May from 447,000 b/d in April to beat the deadline, Middle East Economic Survey reports.

Japan says it will not join the Iran trade embargo (OGJ, May 8, p. 26). Britain, France, and Germany said they would not join, but Japan was key because it has been buying 400,000 b/d of oil from Iran.

U.S. DOE is concerned Iran may attempt to shut off other countries' oil exports from the Persian Gulf and recently held talks for government and private energy security personnel to provide a basis for government action, if needed, to prevent an oil shortage or price spike.

DOE notes, "While the U.S. imposed a trade embargo on Iran because of its support of terrorism, other countries support limited sanctions but continue to purchase about 2.6 million b/d of Iranian oil. Iran could attempt to influence the flow of oil from the Middle East, the most prolific oil producing region in the world."

Amoco plans to invest about $150 million to build 150 retail gasoline stations throughout Poland during the next 10 years.

The company plans to buy gasoline in Poland the first few years but may switch to other sources after that, says Amoco Poland Petroleum Products' Charles Woodbeck. The first 10-15 stations should be open in 1996. Woodbeck says Amoco chose Poland as a starting point for its eastern European expansion because it is the biggest single market and is relatively open to foreign entities.

A $700 million petrochemical project in Qatar on hold since 1991 may be moving forward.

Interest owners Total and Canada's International Octane Ltd. are preparing to introduce Taiwanese partners Chinese Petroleum Corp. and Lee Chang Yung Chemicals to the project and plan to finalize shareholding structure within the next 6 months. State owned Qatar General Petroleum Corp. (QGPC) owns 50% of Qatar Fuel Additives Co., which is to produce about 730,000 tons/year of methanol and 547,500 tons/year of MTBE.

It is the most advanced of two methanol and MTBE projects and will use about 80 MMcfd of gas from North field. The other project is Qatar Clean Energy Co., a venture of QGPC, Britain's Penspen, and Malaysia's Petronas.

Shell Petroleum NV will offer for sale its NV Turkse Shell unit, operator of 27 oil fields in Southeast Turkey that produce 13,400 b/d of oil, about 20% of Turkey's output. Shell says the unit is not essential to the company's upstream portfolio. Investment bank Kleinwort Benson Ltd., London, will handle the sale, which Shell hopes to complete by the fourth quarter.

Shell will retain its downstream operations in Turkey, including a network of 630 retail stations, manufacture of lubricants, grease, and industrial chemicals, and a share in Mersin refinery.

Chevron U.K. is raising doubts over its plan to drill a well off Southeast Ireland this year, blaming the current tight rig market, expense of mobilizing a rig to the area, and getting it through safety case requirements. Earlier this year Chevron took up options on three Celtic Sea licenses and had decided to drill a well on Block 56/14 (OGJ, June 5, p. 17). Chevron told OGJ it is looking for opportunities to tie charter of a rig for its Ireland well to other projects.

U.S. Industry Scoreboard 6/19 chart (72016 bytes)Copyright 1995 Oil & Gas Journal. All Rights Reserved.