OGJ NEWSLETTER

It looks like a long term buyer's market for oil and gas properties in the U.S., but a tightening one in Canada.

Relatively stable oil prices to 2000 mean very good long term opportunities for U.S. independents sharp enough to capitalize on a flood of majors' properties on the market.

Ladenburg Thalman, New York, sees WTI near term at $18-20/bbl and in real terms slightly below $20/bbl by 2000. Despite little prospect for increases, the likelihood of much greater stability in oil prices may be even more important for companies and investors. The analyst contends the only meaningful upstream earnings growth for majors will come from continuing sales of properties to lower their unit cost structure and redeployment of funds outside the U.S. That's good news for independents that have the ability and resources to capitalize on acquisitions, according to Ladenburg Thalman:

"We believe the majors will be flooding the market with such properties for years. A lower oil price environment makes little difference to a purchaser. The cost of purchased properties will reflect it."

Meantime, more than $3.3 billion (Canadian) in oil and gas assets were sold in Canada in the first half, slashing the portfolio of available properties by 40%, says Sayer Securities, Calgary. The value of companies and assets on the market fell from $4.08 billion at yearend 1992 to $2.47 billion by end of June, with several majors, including Husky, Suncor, and Unocal Canada completing their divestment programs. Value of first half transactions increased 22% to $3.38 billion vs. a year ago, and the number of deals jumped to 1,003 from 743 a year ago. Sayer says the tightening market boosted the median acquisition price for oil reserves to $6.20/bbl vs. $4.39/bbl a year ago. Gas acquisition prices also rose, but not as much.

Texas oil production will hit a 50 year low this year if the current rate of decline continues through yearend, Texas Railroad Commissioner Mary Scott Nabors predicts. Texas oil output in April - excluding the OCS - averaged 1.596 million b/d, down about 5.6% from April 1992. TRC estimates the 100,000 b/d of lost production costs Texas about $5.82 million/day. TRC attributes the slide to natural reservoir decline, sluggish drilling activity, price instability, and costly environmental regulations. To reverse the trend, Nabors says, drilling-production incentives and better technology transfer are needed.

Weak crude prices and firmer products demand are buoying U.S. Gulf Coast refining margins. USGC average conversion refining margins rose 18% to $3.46/bbl in the second quarter vs. a year ago, reports Pace Consultants, Houston. After slipping in June, the daily margin for 87 octane unleaded vs. WTI started a rally in July that appears to be continuing in August, says Pace. July gasoline demand in the U.S. was up 1.7% vs. year ago, and distillate demand was up 5.2%, while resid fell 8.8%.

U.S. gas imports from Canada will be at a record high within the next 2 years, EIA predicts. It said imports will rise 14% to 2.1 tcf in 1993 and 12% to 2.4 tcf in 1994. EIA said U.S. pipeline capacity to bring in Canadian gas has grown from 1.77 tcf in 1983 to 3.37 tcf this year and will be 3.41 tcf next year. EIA's short term energy outlook also predicts world oil prices will average $18/bbl in the third quarter and $19/bbl in the fourth quarter.

EIA expects overall U.S. energy consumption to hit record levels the next 2 years if the U. S. economy grows by the expected levels of 2.7% in 1993 and 3.5% in 1994. But U. S. crude production will continue its decline, dropping 4.2% this year and 2.9% next.

Pdvsa has received bids from 44 companies and groups in its second round of contracts to produce oil and gas from marginal fields in Venezuela. More majors are interested this time around-vs. only BP and Shell in the first round-including Chevron, Elf, Exxon, Mobil, Oxy, Shell, and Total.

Bidders are vying for 74 oil fields in 13 units with combined proved reserves of 1.2 billion bbl of crude and condensate. The government estimates the fields could yield 300,000 b/d by 2000. Involved are 20 year operating contracts in which all hydrocarbons produced must be sold to Pdvsa units with reimbursement for capital outlays. In contrast with the 1992 contracts, operators may drill beyond pays delineated by earlier concessionaires.

All eyes in the U.K. environmental lobby could be fixed on Elf Enterprise Caledonia in October when it spuds an exploratory well 5 miles off the south coast of Poole Bay. Elf Enterprise says the Block 98/12-1 well will be subject to environmental assessments by Southampton University before and after drilling. The results of the assessments will be made public. The well will be drilled by a jack up, as were 19 previous wells in the area.

Concerns over BP's efforts to tap Wytch Farm oil field's offshore extension inspired several plans before it decided to drill under Poole Bay with directional wells from onshore (OGJ, Aug. 2, p. 38).

Canadian Occidental has made its first deliveries of light crude from a field in southern Yemen and will deliver 1 million bbl in August (OGJ,

July 19, Newsletter). The deliveries to a refinery in Aden are from Block 14 Masila field in the Hadramaut region. CanOxy said production from the field is 40,000 b/d but will rise to 120,000 b/d after Sept. 26. It is discussing a joint marketing arrangement with the Yemeni government.

CanOxy is operator and has a 52% interest in the operation. Other interests are Occidental Petroleum 18%, Shell unit Pecten Yemen Co. 20%, and Consolidated Contractors International Co., Athens, 10%.

Azerbaijan's acting head of state plans to review contracts the former government drew up with western oil companies, reports Azeri news agency Turan. Gaidar Aliyev told a meeting of foreign company officials last week the administration of deposed President Abulfaz Elchibey did not take Azeri interests fully into account in cutting the deals.

All projects have been frozen since June 24, when Elchibey fled Baku after a military coup (OGJ, June 28, p. 33). A new wrinkle is that the Azeris apparently are tying foreign companies' contracts to their respective governments' policy toward Azerbaijan, notably in regard to the Armenian separatist revolt in the Azeri enclave of Nagorno-Karabakh. Aliyev also blasted allocation of export licenses to private Azeri companies and blamed domestic oil industry mismanagement for a drop in Azeri oil and gas production to 200,000 b/d from 280,000 b/d and to 575 MMcfd from 1.4 MMcfd.

Western Australia soon will overtake Bass Strait as Australia's leading oil producing region, says state Premier Richard Court.

Oil and condensate production could reach 350,000 b/d in 1996, almost triple current output, said Court. For the long term, however, Court's eye is on the growing Asian LNG market. Western Australian LNG out-out will be 7 million metric tons/year after 1995. "Forecasts that the Asian LNG trade will double to about 90 million metric tons/year by 2010 are now regarded as not only reasonable but possibly conservative as new markets such as Hong Kong and India open up, said Court.

Western Australia plans to add two new production trains to the Northwest Shelf LNG project later this decade and develop Gorgon and other nearby gas fields. The state's gas reserves were put at 35 tcf.

China is stepping up the pace of its foreign E&D investments (OGJ, Aug. 9, Newsletter). China National Petroleum Corp. has signed agreements to explore for oil in Canada, Peru, and Russia, and talks are under way for E&D deals in other countries. Further details aren't disclosed.

Tuntex has rejected the Taiwanese government's request that state petroleum company Chinese Petroleum Corp. (CPC) be allowed a 50% stake in its proposed $5 billion refining/petrochemical complex in Taiwan. Tuntex wants a majority stake in the project, which includes a 280,000 b/d refinery and 800,000 metric ton/year ethylene capacity naphtha cracker plus downstream petrochemical units. Tuntex will reserve a 30% share for CPC but says CPC must decide by July 31, 1995. Tuntex plans to cooperate with foreign firms, including Exxon and Mobil, in building and operating the complex, and is talking to Far East Group, Lee Chang Yung Petrochemical Corp., and China American Petrochemical Co., among others, about participation.

Saudi Arabia has suddenly pulled the plug on the 18,600 b/d Mobil/Chemvest MTBE joint venture at Yanbu (OGJ June 21, p. 39), apparently in line with the Saudi policy of government participation in all petrochemical projects within the kingdom. The project was in the engineering phase at Bechtel's Houston office, and some major equipment had been purchased and ordered, likely running cost of cancellation into millions of dollars. Bechtel said most of its 380 employees working on the plant are to be reassigned.