OGJ NEWSLETTER

Petroleum industry indicators remain a mixed bag.

Purvin & Gertz sees little prospect for upward oil price pressure even with a workable agreement resulting from this week's OPEC meeting. It thinks an April spot gasoline price of 60cts/gal for Gulf Coast unleaded regular will rise only slightly through the second quarter, dropping thereafter.

Kidder Peabody estimates second quarter earnings for the 20 majors it tracks will total about $5.1 billion, about flat with the first quarter. However, the group's first quarter operating income was a 48% increase from the same period in 1992, and net earnings for the period were a seven-fold jump from first quarter 1991.

EIA predicts energy use, per GDP dollar will fall 1.1%/year world-wide during 1990-2010 as older, less efficient equipment is replaced. It says the world economy will grow by 2.7%/year, slurring a rise in total energy demand to 454-500 quadrillion BTUs in 2010 from 346 quads in 1990.

In the short term, EIA sees U.S. 1993 natural gas wellhead prices at an average $2.01/Mcf, up 15cts from 1992, and $2.20 in 1994. But EIA predicts world oil prices will remain relatively weak, at $19/bbl in 1993 and $20/bbl next year, and U.S. crude production will continue its long decline, dropping 500,000 b/d this year.

U.S. drilling costs dropped 4% on a per foot basis in 1992, as record low drilling activity prompted heavy discounting by service and supply companies, reports IPAA.

That may prove short lived, however, as stronger natural gas prices appear to be a recent rally in U.S. drilling. By Baker Hughes' tally, U.S. active rigs increased by 30 units the week ended May 28, up 7% from last year. That's a rise of 68 units since the week ended Apr. 23, with rigs drilling for gas accounting for all but five of the hike.

Interior Sec. Bruce Babbitt is on President Clinton's short list of candidates for a U.S. Supreme Court appointment.

Babbitt, a former Arizona governor, is among several persons Clinton is considering to fill the seat of retiring Justice Byron White.

Canada's House of Commons has approved the North American Free Trade Agreement, which would ease trade barriers among Canada, the U.S., and Mexico. Passage of the treaty was not in doubt, although 50,000 persons demonstrated against it recently in Ottawa. The Canadian Senate is expected to approve the plan this month.

Saskatchewan plans to introduce legislation to unilaterally rewrite an agreement between the province and a group of cooperatives on an $874 million (Canadian) heavy oil upgrader. The provincial government and Federated Cooperatives, representing 300 Saskatchewan cooperative businesses, have been unable to negotiate a new deal on operation of the money-losing NewGrade upgrader at Regina. Ottawa also has an interest in the upgrader and is prepared to amend the existing agreement. The upgrader started up in 1989 and has experienced technical, environmental, and financial problems that Saskatchewan Premier Roy Romanow says have put the government on the hook for more than $600 million. An independent report last month said the upgrader is unlikely to make enough money to pay off its debt and recommended a $225 million cash infusion in the project.

Federated offered to pay $50 million toward debt reduction but contends the government's unilateral rewrite would be a blatant, unethical abuse of power. The legislation would give the government power to gain control of the upgrader company's eight member board and set up a new arbitration process between the government and Federated to ensure any losses would be shared equally.

Newfoundland is attracting noteworthy exploration interest. Hunt Oil successfully bid $5.125 million (Canadian) in work commitments for an 86,485 acre parcel on Port au Port peninsula south of Stephenville. It was one of six onshore western Newfoundland parcels receiving a combined $5.7 million in the latest bid round. Since 1991, companies have committed $7.4 million for nine onshore parcels and $6.1 million for eight offshore parcels.

Meantime, the $5.2 billion Hibernia oil development project off Newfoundland moved into the major construction phase last month with start of concrete pouring for the gravity base production platform.

The fate of Hibernia was in doubt last year when Gulf Canada pulled out as a 25% partner. It was rescued by additional investment by the existing partners and purchase of a 6.5% interest by Murphy Oil. The field is to start up in 1997 with initial production of about 110,000 b/d.

Tanzania is moving closer to tapping its gas reserves for a commercial project. In response to a government invitation, Canada's Ocelot and TransCanada are considering joining Tanzanian state companies and the World Bank in a proposed $200-300 million project to develop gas discovered in the mid-1980s in the Songo Songo area 300 km south of Dar es Salaam and burn it to produce 100,000 kw of electricity for domestic use and 100,000 kw for export to Kenya. Plans call for a 12 in. line extending 20 km subsea to shore and 200 km onshore to Ubungo in Dar es Salaam. Ocelot would handle field development and gathering systems, and TransCanada would own and operate the gas transmission lines and power plants.

Scandal continues to wrack state owned petroleum companies. Latest to feel the heat is Taiwan's state owned Chinese Petroleum Corp. (CPC), whose chairman, Chen Yao-sheng, resigned last week in the wake of a widening scandal involving contracts for construction of a wastewater treatment plant at CPC's Kaohsiung refinery. Several other officials at CPC and contracting firms have been arrested or held for questioning over allegations of kickbacks related to the main contract or subcontracts. Brown & Root (B&R) won the $173.8 million main contract and let the $137.7 million construction subcontract to Taiwan's Tang Eng Iron Works, despite what CPC contends is a contractual ban on reassigning the project to another company. Fueling the scandal was a May 31 fire that swept CPC's Taipei offices containing records prosecutors believe were vital to the investigation. CPC says it is terminating its original contract with B&R and will choose a local contractor to finish the project, about 70% complete. CPC also says it will demand B&R pay an $87 million penalty for breach of contract. B&R confirmed its senior official on the project, Neil Lee, was detained for questioning and has been asked to remain in Taiwan as a witness. It said, "We have not received word of termination of contract ... We have no knowledge of nor have we participated in bribes to obtain the contract." B&R also said that while it retained overall responsibility for the project, a clause in its bid document required it to subcontract work to a Taiwanese Class A environmental firm.

French companies continue to make inroads in the former U.S.S.R.

Elf last week signed a protocol of cooperation for oil and gas exploration and production in Turkmenistan.

Elf in February signed a similar agreement with neighboring Uzbekistan. It plans to assume all exploration risks in Turkmenistan, which produces about 5.75 bcfd of gas and 100,000 b/d of oil.

While seeking more foreign investment in their own petroleum sectors, some C.I.S. governments are pursuing petroleum investment abroad.

Russia's Tatarstan republic plans to send more than 100 Tatneft geologists to Turkey this month to explore for oil. If geological work justifies drilling, the first well will be drilled to about 2,500 m within a year at a cost of about $5 million, reports Moscow newspaper Delovoi Mir.

A Marubeni led combine is considering building a $1 billion, 100,000 b/d refinery in Uzbekistan, reports Moscow newspaper Finansovye Izvestia. The combine will seek credits from Japan's and the U.S. export import banks for the project. Separately, state owned Uzbekneftegaz wants to acquire drilling equipment and tubular goods from Marubeni in exchange for about 365,000 bbl of condensate to be sold in Europe.

Barclays Bank of Canada has completed financing for a $1.1 billion revamp of Russia's Novokiybyshev refinery, one of the nation's largest.

To be financed in $250 million phases, the project is the first in Russia in which revenues from refined products exports will be used to help finance it, Barclays contends. Canadian companies will provide all engineering work, equipment, and technology.

Russia's oil production slide continues, raising the specter of cuts in crude exports to follow recent cuts in refined products exports.

Oil flow apparently dipped to less than 7 million b/d last month. April crude/condensate output fell 14% from a year ago to 7.057 million b/d. Russian oil production for January-April fell 15% to 7.117 million b/d, compared with drops for the period of 9% for coal and 0.5% for natural gas.

Vagit Alekperov, president of Lukoil, Russia's biggest oil firm, contends oil flow will stabilize within 2 years and Russia won't become a crude importer, as some Moscow economists predict.

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