OGJ NEWSLETTER

There are more signs of movement for foreign companies seeking to develop the vast oil and gas resources off Russia's Sakhalin Island.

The Marathon-Mitsui-McDermott combine has submitted its plan to develop Piltun-Astokhskoye and Lunskoye fields to the Sakhalin administration, Moscow daily Kommersant reports.

The group, which Shell recently agreed to join, hopes to begin operations in April 1993. Plans include oil and gas pipelines to connect Sakhalin to the mainland, a 15,000 b/d refinery at Korsakov, and a 6 million ton/year LNG plant.

Another tender for the right to develop oil and gas on the Sakhalin shelf will be held in mid-1993, Kommersant reports. That follows Russian Acting Prime Minister Yegor Gaidar's September order to open Sakhalin onshore and offshore areas to international tenders (OGJ, Oct. 5, p. 29).

Japan's Sodeco has proposed to Russia that Exxon be invited to join its joint venture to explore off Sakhalin.

MITI says Sodeco also proposed some blocks around the two covered in its agreement be explored to boost development efficiency. The proposals are to be discussed at the first operating committee meeting of Sodeco and its Russian joint venture partner in mid-November.

Uzbekistan's Uzbekneft has signed a multimillion dollar contract to buy four drilling equipment packages from Varco's Shaffer division, which Shaffer contends is "our industry's first major contract for rig equipment with Uzbekistan." Sale includes 15,000 psi blowout preventer stacks, stack control units, choke/kill manifolds, and accessories for four drilling rigs. Shipment is to begin in first quarter 1993.

The Russian government is being pressured by hard line elements and labor unions to stop cooperating with the U.N. in its oil embargo against Yugoslavia and in sanctions affecting Iraq's petroleum industry.

A Russian delegation, which included writers and religious leaders as well as trade union representatives, recently visited Yugoslavia at the invitation of the Belgrade government. On return to Moscow, the group held a news conference and read a proposed letter to Russian President Boris Yeltsin that asks him to ease fuel sanctions against Yugoslavia "because thousands of innocent elderly people and children might otherwise die from the cold this winter."

Meanwhile, the Yeltsin regime has been urged to renew Russia's formerly close ties with Iraq by selling arms and petroleum industry equipment in exchange for crude. Opposition groups, including former Communist officials, also want Moscow to strengthen economic relations with Iran.

Gasoline is so scarce in Moscow that the fuel is being sold in used vodka and wine bottles alongside produce and meat at the city's open air markets.

Moscow officials justify their latest gasoline price hike at service stations by claiming the move was necessary to keep the capital's gasoline stocks from being bought up by motorists from surrounding regions where gasoline costs much more.

Moscow's refinery reportedly is losing as much as 20 million rubles/day because of the city's comparatively low gasoline prices. New pump price for premium Ai-93 gasoline is 23-25 rubles/l., whereas the local refinery says it can break even only if the price is 35-37 rubles/l.

A major problem is the growing disparity between prices for retail gasoline and what the Moscow refinery must pay for crude from Tatarstan in the Volga-Ural region. Independence minded Tatartstan wants at least 12,000-13,000 rubles/ton for its crude, but Moscow authorities say they will pay no more than 10,000 rubles/ton, especially since other Russian refineries can buy western Siberian crude at that price.

China is to formally decide by yearend whether to open its interior basins to foreign investment, Kyodo News Service reports.

Premier Li Peng told a visiting Japanese delegation in September that Beijing plans to change its policy of shutting foreign companies out of the most prospective interior basins but did not disclose a timetable.

In October, China National Petroleum Corp. Pres. Wang Tao told Japan National Oil Co. Pres. Kunio Komatsu the new policy would include giving access to the prospective Tarim basin and other areas except the Tibet autonomous region. Wang also said China welcomes foreign investment to increase production in existing fields, such as Daqing.

Taiwan's Chinese Petroleum Corp. is studying feasibility of moving its second naphtha cracker, scheduled to suspend operations in 1994, to the Philippines.

The cracker is to be dismantled or relocated when CPC's fifth naphtha cracker is complete. Manila has sent a delegation to Taiwan to urge that the plant be moved to Subic Bay, which is to be converted to an industrial zone following the shutdown of the U.S. naval base there.

Elsewhere, parts of Taiwan's petrochemical sector have fallen on hard times. Formosa Chemical & Fiber Corp.'s new purified terephthalic acid plant is running at less than 50% utilization amid depressed PTA prices.

Designed for 250,000 metric tons/year, the plant's output has been only 10,000 tons/month. The plant is expected to post a $12 million loss this year.

And FCF's polystyrene project is expected to lose more than $4.8 million this year. Although the price of nylon filament has fallen 20-30% from its high in mid-1991, world's second largest nylon producer FCF plans to press ahead with a 50% capacity expansion to 210,000 tons/year, to he complete by late 1993.

Ecuador will leave OPEC in March 1993, Energy Minister Andres Barreiro told a press conference in Quito. On Sept. 17 Ecuador President Sixto Duran Ballen said the country would withdraw, then backed off the statement in early October (OGJ, Oct. 5, Newsletter). He said membership in the group had not brought Ecuador any major benefit.

In response to Alberta's royalty adjustments (OGJ, Oct. 26, p. 34), Amoco Canada will begin this month a 10 well horizontal drilling program in Pembina Cardium field. Alberta's move makes the activity more cost effective, the company says. "Essentially the adjustments cap the royalty rate at the level associated with average production of the vertical well during the 12 months prior to reentry," Amoco Canada's Bob Taylor says.

"Incremental production that is realized from the horizontal technology will be capped at half the rate .... It's a win-win situation. The government receives additional revenue and Amoco has the cash flow to increase production using this technology. If we had to shut down these vertical wells, which were not cost effective without the benefit of horizontal drilling, these existing reserves would not have been recovered."

Eleven oil companies have joined Conoco Inc.'s suit against the U.S. government to recover $600 million plus interest spent on offshore leases tied up by federal drilling bans. The companies allege the government has illegally taken property in blocking drilling on leases off North Carolina, Southwest Florida, and in Alaska's Bristol Bay. With Conoco in the suit are Amerada Hess, Amoco, Chevron, Marathon, Mobil, Murphy, Occidental, Pennzoil, Shell, Texaco, and Unocal.

Baker Hughes' active U.S. rig count averaged 803 in October compared with 795 for October 1991, marking the first time in 18 months the monthly average was up vs. a year ago.

Baker Hughes counted 838 active rigs the week ended Oct. 30, a 6% increase from the same time last year. More than half are drilling for gas.

U.S. spot gas prices for November delivery averaged $2.20/MMBTU, Natural Gas Clearinghouse reports in its latest survey, down 37/MMBTU from October but 52/MMBTU higher than in November 1991.

In the latest development in the continuing saga of U.S. retrenchment and exodus, Apache is negotiating to buy Shell Offshore's 92.6% stake in Gulf of Mexico Matagorda Island Blocks 681 and 682 for $67 million.

Apache holds the remaining interest in the leases, which produce about 60 MMcfd of gas.

The deal includes drilling and recompletion opportunities on leases totaling about 11,500 net acres and 14 miles of gathering line.

Apache Chairman Raymond Plank said, "This tactical acquisition would increase our gas production to approximately 300 MMcfd and would assure Apache of another year of reserves growth."