OGJ NEWSLETTER

Political hot spots still vex oil and gas companies and roll markets.

Royal Dutch/Shell denies reports it has delayed a final decision to proceed with a $4 billion LNG export project in Nigeria.

A board meeting of Nigeria LNG Ltd., in which Shell holds 24%, was slated for Nov. 15 in London, and it had been widely expected the Nigeria LNG project investment would get a green light at this meeting.

However, Shell has become the focus of international protests after Nigeria's military regime executed Ken Saro-Wiwa and eight other Ogoni minority campaigners. Protesters have sought to link Shell - which had operated in Nigeria's Ogoni region before attacks on workers and installations drove it out- and the oppressive military junta ruling Nigeria (see Watching the World, p. 37).

Greenpeace reportedly may call for a 24 hr worldwide boycott of Shell gasoline stations. U.K. cosmetics firm Body Shop has backed an Ogoni regional community group and called for action against Shell (OGJ, Nov. 6, Newsletter).

Shell says a decision on the LNG project, first proposed more than 25 years ago, is expected by yearend.

However, 2% partner International Finance Corp. (IFC), investment arm of the World Bank, pulled out of the project Nov. 10, citing macroeconomic considerations but saying, "The merits of this project and its structure are still sound." IFC also hinted that its member countries would have vetoed a $100 million loan it was going to provide the project.

The U.S. has censured Nigeria's executions and recalled its ambassador. Although the White House said it would not attempt to seek an oil embargo against Nigeria, it might seek international support for a ban on oil production equipment exported to Nigeria. Britain also opposes oil sanctions but may seek a ban on arms exports to Nigeria.

While Shell is getting most of the heat in the Nigerian controversy, other petroleum companies working there could come under fire as well. Mobil, Chevron, Elf, Texaco, Agip, and Ashland operate producing fields in Nigeria, while Statoil, BP, and Conoco are exploring deep waters off Nigeria.

Is Saudi Arabia, previously an oasis of stability in the strife torn Middle East, going to be the next trouble spot?

As they did with the Nigerian events, oil markets last week shook off the aftermath of a terrorist bomb attack on a U.S. military mission in Riyadh that claimed seven lives. Oil prices rose at first report of the bombing, with Brent rising 17 from the Nov. 10 close to $16.79/bbl Nov. 13 before slipping back to close at $16.60. Brent closed only 2 higher Nov. 14 as trading was limited ahead of the OPEC meeting this week.

If anything, oil futures drifted lower in early trading Nov. 14 because of a Baghdad newspaper report that Iraq might accept a limited sale of its oil under U.N. auspices if the U.N. revises its conditions Baghdad believes violates Iraqi sovereignty-an unlikely prospect.

There is little threat to Saudi oil facilities, which are under extremely tight security and far removed from Riyadh.

Analysts contend only a massive, protracted, and successful military assault could halt Saudi oil exports. However, U.S. oil firms stepped up security measures at their offices in Saudi Arabia in light of the bombing.

Meantime, the Clinton administration now supports moves to put more pressure on non-U.S. oil companies that do business with Iran.

The U.S. has an embargo on oil trade with Iran, but other nations have not followed suit. Undersecretary of State Peter Tarnoff said the administration will work with congressmen proposing bills to penalize non-U.S. oil firms active in Iran but wants legislation to give it discretion over what sanctions might be imposed.

Nymex is considering a futures contract for coal, which with the natural gas contract now trading and a proposed electricity contract would enhance interfuel trading and competition. At the API meeting in Houston last week, Nymex Pres. R. Patrick Thompson pointed to an increase in spot trading for coal, a decrease in use of customized, long term contracts, and development of coal pricing points-all essential to a futures contract.

U.S. Energy Sec. Hazel O'Leary has survived a controversy after spending $46,500 to rate reporters who write about DOE.

Vice President Albert Gore and White House Chief of Staff Leon Panetta called O'Leary on the carpet but brushed aside suggestions she be fired. Robert Dole (R-Kan.), Senate majority leader, said, "This shocking waste of taxpayer dollars is just another reason to turn out the lights at the Energy Department."

U.S. Interior Sec. Bruce Babbitt has created a committee to advise the Bureau of Land Management on oil and gas issues in the Green River basin of Wyoming and Colorado.

The 15 committee members, who have yet to be named, will consist of representatives of the governors' offices, state game and fish officials, local county commissioners, environmentalists, and oil industry officials.

The committee will examine data from the first phase of the Southwest Wyoming Resource Evaluation Project and consider options or recommendations to ensure reasonable development of oil and gas while protecting environmental values. It also could take up other issues. The panel will meet in January at Rock Springs, Wyo., and is expected to complete its work within a year.

Interprovincial is considering a second major expansion of its crude oil pipeline system from Alberta to Chicago and the U.S. Midwest.

IPL plans a 120,000 b/d expansion and wants to build a second, 170,000 b/d phase from Superior, Wis., to Chicago. The $570 million (Canadian) project would move new volumes past Chicago into the Wood River, Ill., area. IPL contends there is increasing demand for Canadian crude, and increased heavy oil output is more than offsetting declining conventional crude output. The first phase expansion competes with plans by Express Pipeline for a new crude pipeline to ship about 170,000 b/d from Alberta to Rocky Mountain states (OGJ, Oct. 9, p.36).

Meanwhile, the Express line will be the first pipeline project in Canada to face a joint panel of energy and environmental regulators.

Federal environment Minister Sheila Copps has appointed two environmental specialists to sit on a National Energy Board panel that will begin hearings on the project Jan. 15 in Calgary. The environmental specialists will sit temporarily on the NEB hearing board to consider the pipeline's effects under a new Canadian Environmental Assessment Act.

Development of Colombia's supergiant Cusiana-Cupiagua oil fields complex has received a major financing boost (see related story, p. 27).

Japan's ExIm Bank extended a $300 million loan to Ecopetrol for Cusiana development costs the next 2 years.

The Colombian state oil company is committed to provide about $2 billion for Cusiana development the next 2 years, including $850 million for construction of an oil pipeline in Central Colombia to take Cusiana crude to market.

An end to Petrobras' petroleum monopoly in Brazil looms closer.

Brazil's senate last week approved in a second vote (OGJ, Oct. 30, p. 22) a constitutional amendment ending the state petroleum company's monopoly in E&P, transportation, refining, and exports and imports. By the end of November, a special congressional meeting will be called to develop a regulatory framework.

Sen. Elcio Alvares said, "Promulgating the legal framework for enforcing the amendment - which allows domestic and foreign companies to conduct exploration and development in areas through concession tenders to be disclosed by the government - will be much more difficult than was amending the constitution."

Alvares said Brazilian President Cardoso reiterated a commitment not to privatize Petrobras. However, several oil company executives told OGJ they hope Cardoso made this commitment mainly to smooth the way for the demonopolization amendment.

"No one can guess what will happen in the future," one executive said. "After the regulatory framework is passed, it will be a whole new ball game."

Russia's government has approved a production sharing contract with Total covering development of Khariaga oil field in Timan-Pechora basin 60 km north of the Arctic Circle. Development is expected to cost $300 million in a first stage and $500 million in a second. Target is two pay zones with high sulfur crude, with peak output pegged at 50,000 b/d. Total is looking for partners and plans to keep a 50% stake in the venture. Local and parliamentary approvals still are needed as well as a long term transportation contract.

Meantime, Total is pursuing an EOR project with Tatneft in Tatarstan's supergiant Romashkino oil field.

Production started from the project in 1992, reaching 6,000 b/d by yearend 1994. Total is aiming for 12,000 b/d in another 2 years with the recent installation of two cellulose polymer injection units.

Exxon and India's Hindustan Petroleum Corp. Ltd. have signed a memorandum of understanding in Bombay to study feasibility of forming a joint venture company to engage in a broad range of petroleum activities in India.

The two will look at importing, distributing, and marketing LPG, including development of an import terminal, bottling plants, and other LPG distribution facilities. LPG demand in India is growing steadily, and estimates are that more than 10 million customers are awaiting access to new LPG supplies.

The two also will study development of an "experimental" retail service station network either by building new service stations, modernizing existing service stations to full international standards, or both. They also will consider further steps to import and manufacture other refined products to market in India.

In February 1995, the two companies signed other agreements that returned Esso brand lubricants to India after an absence of nearly 19 years.

Exploration in frontier areas continues to advance.

Amoco has another gas strike in the Mediterranean off Egypt, confirming a significant Pliocene gas trend there. Its 1 Seth wildcat on Ras El Barr concession cut more than 375 ft of gas pay in seven zones at 4,600-8,100 ft in Pliocene sands.

A test of 30 ft of perforations in the lowest pay zone yielded 28 MMcfd of gas and 486 b/d of condensate. Amoco and partner Agip disclosed a gas find in the adjacent Temsah license in September.

Danish state oil company Danop plans to deepen a borehole in the Faroe Islands to gather information in preparation for an offshore licensing round scheduled for 1997. The 1 Lopra scientific well was drilled to 2,000 m in 1981 on the island of Suduroy. Danop plans to take the well 1,500 m deeper in mid-1996.

Faroese Petroleum Administration said the well deepening will allow penetration of lower Tertiary basalts, which cover almost the entire Faroese region and complicate identification of deeper strata.

Twenty-four oil companies attended a meeting in Faroe capital Torshavn in late October and were invited to participate in the project.

They have until Dec. 1 to make a commitment. The administration said the well will go ahead only if the companies are willing to fund a budgeted $5 million.