OGJ NEWSLETTER

Fallout from lagging oil and gas prices and recession in North America continues apace. Phillips will begin next month laying off about 1,100 workers, including 950 employees and full time contract personnel at its Bartlesville, Okla., headquarters. The remaining layoffs will hit Houston and field offices. The cuts are part of a comprehensive restructuring, to be complete by the end of June, that will save Phillips about $150 million. Maxus plans to cut 1992 North America E&D by more than 50%

Feb. 24, 1992

7 min read

Fallout from lagging oil and gas prices and recession in North America continues apace.

Phillips will begin next month laying off about 1,100 workers, including 950 employees and full time contract personnel at its Bartlesville, Okla., headquarters. The remaining layoffs will hit Houston and field offices. The cuts are part of a comprehensive restructuring, to be complete by the end of June, that will save Phillips about $150 million.

Maxus plans to cut 1992 North America E&D by more than 50% from 1990-91 levels, a move that will eliminate about 10% of Dallas staff.

"While domestic exploration opportunities are declining, our international exploration outlook is favorable," said Maxus Chairman Charles Blackburn. "Therefore, while jobs are being eliminated in North America, we will be adding new positions in international from the same skill tool."

Drilling doldrums in the U.S. have not hit bottom yet. Salomon Bros. thinks the Baker Hughes active rig count could decline to the mid to high 500s the next 2 months, based on a 40% plunge in the number of drilling permits issued in January 1992 vs. a year ago. Salomon Bros. reported several states, notably Texas and Oklahoma, posted the lowest permit totals since it began monitoring them in 1981. Further, Salomon Bros. has lowered its U.S. natural gas price forecast for 1992 by another 100 to an average $1.30/MMBTU, its third cut in 6 weeks.

Service company consolidation continues. Diamond M-Odeco, the biggest offshore drilling contractor following recent acquisition of Odeco Drilling (OGJ, Feb. 17, p. 43), plans to cut its fleet to 40 from 52. Diamond M-Odeco Pres. Robert Rose says such consolidation will improve the market and there are signs more will happen with attractive packages being offered for sale.

Consolidation has an upside, too. Occidental has filed a preliminary prospectus to sell about 12 million shares of its stock in Canadian Occidental to a syndicate of Canadian underwriters, with an option for 4 million additional shares. In all, that represents 22% of Oxy's 46% stake in CanOxy. The sale would enable Oxy to complete its $3 billion debt reduction program announced last year (OGJ, Jan. 21, 199 1, p. 18).

U.S. gas markets will emerge in 1992 from the throes of regulatory transition, low prices, and surplus deliverability to take a turn for the better, predicts Carol Freedenthal, principal of Jofree Corp., Houston.

Freedenthal says the painful changes the gas industry has been experiencing "are typical of an industry in transition following deregulation."

He expects gas prices to increase quickly in the mid-1990s, "but not soon enough for independent operators who give up on higher prices in 1992."

FERC Chairman Martin Allday will press for a commissioners' vote on the "mega-NOPR" rule in March. The proposed rule would revise pipeline service obligations and complete transition to a fully competitive gas pipeline market (OGJ, Feb. 17, p. 23).

OSHA plans to release a standard covering process safety management of highly hazardous chemicals that will affect chemical and natural gas liquids industries, among others. The rule will identify more than 130 toxic and reactive chemicals in specified quantities and flammable liquids and gases in quantities of 10,000 lb or more.

Are U.S. government auto fuel economy standards in danger?

A Washington, D.C., federal appeals court has overturned the government's 1990 corporate auto fuel economy standard on safety grounds.

The ruling voids the National Highway Traffic Safety Administration's decision to maintain the 1990 standard at 27.5 mpg. In a suit brought by Competitive Enterprise Institute and Consumer Alert, the court ruled Nhtsa "illegally ignored CAFE's lethal effect of restricting availability of larger, more crashworthy cars," CEI said. CEI contends the ruling means CAFE limits might be retroactively lowered, force Nhtsa to lower future CAFE standards, and may spell defeat for congressional proposals to make CAFE even more stringent (OGJ, Nov. 11, 1991, p. 17).

Massachusetts is the first state to jump on California's stringent vehicle emissions standards bandwagon.

It has adopted California Air Resources Board standards that are to lead to zero emission vehicles by early 2000. Oxy-Fuel News reported the Massachusetts move follows a 6 month study to determine cost effectiveness of adopting the standards. The study was required by law after opposition voiced concern at the speed with which the state was moving on the program. More than a few Northeast states are expected to follow suit.

However, inadequate supplies of blending components and limited blending options could force California refiners to begin importing finished gasoline from other countries when gasoline reformulation and performance specs approved by CARB go into effect in March 1996, warns Pace Consultants, Houston. "The numbers say refiners can make 100% CARB gasoline from crude oil and MTBE, but they probably can't," says Pace's John Dosher. He thinks alkylate is the best blending component available to meet CARB specs without losing octane but contends "there just isn't enough alkylate to go around."

Refiners serving California gasoline markets will have to make large capital investments to produce the required gasoline fractions and for tankage and advanced blending systems. Pace says enough engineering and major equipment fabrication capacity is available to handle the expected surge of CARB regulation driven projects. But regional construction labor shortages could develop, forcing some refiners to turn to modular construction techniques.

Meantime, Marathon plans to spend about $87 million through 1994--$75 million this year--to upgrade its 255,000 b/d Garyville, La., refinery to meet Clean Air Act regulations. Work includes expansion of low sulfur diesel fuel units and bringing the refinery into compliance with new rules on benzene emissions.

New equipment will be installed at the refinery's aviation unit to reduce vapor pressure, and waste handling equipment will be installed to reduce emissions of volatile organic compounds,

Mexico plans to build three MTBE and two TAME plants the next 2 years, ending imports of the two. France's IFP won an international tender on the project, part of a $1.2 billion clean fuels program Pemex is pursuing.

Pdvsa is considering purchase of the 80,000 b/d Arochem refinery in Puerto Rico, according to Caracas press reports. The company hasn't commented on that report but continues to deny reports it plans to sell part of its Citgo unit. Earlier this year, officials in the administration of Venezuela's President Carlos Andres Perez suggested the sale to help fund the state oil company's ambitious capital program (see story, p. 43). Pdvsa sees its 100% ownership of Citgo as one of its best investments.

Bolivian and Brazilian negotiators will decide Mar. 11 on the route and diameter of a natural gas pipeline to be built between the two countries. Negotiators will decide whether the 1,200 mile pipeline will he built from Santa Cruz to Puerto Suarez, Corumba, and Sao Paulo or through Paraguay.

Argentina is offering exploration licenses on 41 blocks in Los Bolsones, Cuyana, Bolsones, Nirihuau, Neuquen, Austral, Golfo San Jorge, and North East basins under the first licensing round of its "Argentina plan" (OGJ, Nov. 4, 1991, p. 25). Bid deadline is June 30.

Ottawa has put out a call for nominations of exploration acreage in the Canadian Beaufort Sea and Mackenzie Delta. The Indian Affairs and Northern Development Department will decide whether to include those nominations in acreage it will offer for bid beginning June 15. Companies also can nominate acreage covered by licenses due to expire June 15. There was renewed interest when Ottawa offered some arctic locations for bidding last year. Shell Canada, Amoco Canada, and Chevron Canada pledged $55.3 million in work commitments for rights to three blocks in the region (OGJ, Dec. 23, 1991, p. 27).

Iran, pursuing barter deals with former Soviet republics (see story, p. 38), also will sign a barter deal with Kuwait. In exchange for Iranian light crude delivered to Kuwait Petroleum Corp.'s European refineries, Kuwait will supply gas oil and kerosine for the Iranian market. Volumes have not been disclosed. Kuwait is steadily rebuilding its processing capacity after the ravages of the Iraqi invasion, and capacity is now estimated at about 225,000 b/d.