OGJ NEWSLETTER

The C.I.S. is poised for a huge financial boost the next few years, but can the system handle it? As much as $85 billion of foreign capital may be invested in C.I.S. oil, gas, and minerals projects under agreements signed between 1990 and early 1993, reports the United Nations Economic Commission for Europe, Geneva. Although spending will be spread over decades, the commission says investment the next 4 years could approach $10 billion, double foreign investment across all C.I.S. industries to date.

World Bank in June will consider a $1 billion loan for the Russian Federation and three oil producing associations in western Siberia. The bank would provide $500 million, with cofinancing from the European Bank for Reconstruction and Development. The loan will enable the producing associations to rework old fields and invest in new ones, increasing production by 240,000 b/d. No joint ventures with western oil companies are involved.

The recent second session of the Russian oil producers' congress in Moscow ended on a sour note (OGJ, May 10, Newsletter). Russian minister of fuel and energy Yuri Shafranik told industry executives overall economic reform in Russia and other republics of the C.I.S. can't be achieved without stabilizing the petroleum sector.

He said the oil industry's condition is critical, with petroleum producers being owed 800 billion rubles by delinquent customers while at the same time many middlemen are making "billions in rubles and hard currency through often illegal crude and products sales in Russia and abroad."

Shafranik reported that Russian crude/condensate production this year may plunge by another 1 million b/d, with thousands of wells still shut in (see related story, p. 17). Following the congress, participants complained that they had been unable to get clear responses from the ministry of finance, the central bank, and Russian prime minister Viktor Chernomyrdin to their questions regarding where billions in oil revenue are going and why the government hasn't any money for investment in the petroleum industry.

The Ukraine government, meanwhile, is preparing to deal with Russia at world market rates starting July 1. London's Financial Times says this would bring a sharp shock to the Ukraine's faltering economy but assist market reform. Ivan Herts, foreign economic relations minister, has prepared a decree obliging Russia to pay world prices to transport oil and gas through Ukraine. He expects Russia to increase energy prices in return.

Competition among pipelines to move as much as 130,000 b/d of Santa Barbara Channel crude to market is heating. A draft environmental impact report released this month by California Public Utilities Commission found Four Corners Pipeline Co.'s existing Line 90 the environmentally preferred option among pipelines. A proposal to reverse Line 90, which now moves Alaskan crude from Los Angeles to link with the All-American Pipeline (AAPL) to the Gulf Coast, won over the proposed Pacific Pipeline--favored by key channel producers Chevron and Exxon--Cajon Pipeline, and AAPL. Chevron recently won approval for interim tankering of channel crude until a feasible pipeline alternative becomes available (OGJ, Jan. 18, Newsletter).

Bitor, a unit of Venezuela's Pdvsa, is about to wrap up talks on the planned introduction of Orimulsion into the U.S., OPEC News Agency (Opecna) reports. Bitor says long term sales to the U.S. could total about 12 million tons. Bitor Vice Pres. Emilio Abouhamad said early last month his company was on the verge of making a shipment of 100,000 tons of Orimulsion to the U.S. East Coast.

The company also is finalizing a contract to ship Orimulsion to Canada, where about $280 million is being spent to convert plants to run on the Venezuelan crude based emulsion. Bitor expects to sell about 400,000 tons of Orimulsion to Japan and Canada next year and 800,000 tons by 1995. The company sold about 1.72 million tons of Orimulsion in 1992.

Pemex's plans to fully privatize its petrochemical business are likely on hold until negotiations on parallel accords for the North America Free Trade Agreement are complete. Mexico's National Chemical Industry Association says labor and environmental provisions of Nafta will determine how attractive the properties will be to foreign investors.

Mexico's El Financiero International reports Pemex-Petroquimica officials have begun talks with BP on sale terms of Pemex ethylene plants.

Talisman Energy plans to spend $20 million to drill four wildcats on and off Cuba and increase production from an oil field there to 32,000 h/d from 12,000 h/d. Talisman Pres. Jim Buckee says Cuba offers a lot of potential for 200-600 million bbl oil fields. He says the company is looking for oil in a geological setting very similar to the Monkman area of Northeast British Columbia, where Talisman has led a successful natural gas play. The company plans to spend $120 million in 1993 on exploration, development, and acquisitions and plans to complete a $276 million takeover of Encor.

Majors are tightening the focus of their non-U.S. E&D operations. Amoco recently pulled out of Madagascar, Mauritania, and Qatar and will be leaving other countries in an effort to sharpen the geographic focus of its international exploration program, Vice Chairman Patrick Early told security analysts. And Sun Chairman Robert Campbell told the company is annual meeting the company is withdrawing from international exploration but plans to continue to expand crude production by acquiring producing leases.

British parliament voted Mar. 11 to accept proposed petroleum revenue tax reforms without a transitional period. A vote on an amendment to the Finance Bill, proposed by the Labour party, showed 289 members in favor of immediate reforms, and 253 against. A second amendment with similar intentions, proposed by Alex Salmond of the Scottish Nationalist party, was defeated by 287 votes to 250. The amendments were aimed at securing transitional relief for companies that lost the right to claim about 80% of exploration and appraisal drilling costs against PRT producing fields (OGJ, Mar. 29, p. 33).

Financial Times reports Stephen Dorrell, financial secretary to the U.K. treasury, insisted the impact of the new regime had been carefully examined before its introduction. Dorrell claimed provisions had been made for 200 million ($300 million) to be available in the current financial year for any transitional relief that was required.

"The Department of Trade & Industry seems to have been passed over, were not consulted, and have no influence..." in tax reform preparation, said Derek Marnoch, chief executive officer of the Aberdeen Chamber of Commerce, speaking at an Aberdeen conference. "The government needs more revenue and a change in the regime, hut we need to look at this in terms of how we sustain development in the long term on the U.K. continental shelf, not as a short term money spinner for the treasury."

The proposed European carbon tax could trigger an oil price crash similar to that of 1986 and throw the economies of petroleum producing countries into chaos, says a study released by U.A.E.'s Emirates Industrial Bank. Opecna reports the study urges oil producing countries to impose similar taxes on imports from industrialized countries. It predicts' industrial countries will reap about $90 billion/year from the tax and urges oil producing countries to overlook their current differences on production levels and form a common front to stop the imminent danger posed by the carbon tax.

OPEC output for April was down 250,000 b/d vs. March to 24.12 million b/d, Middle East Economic Survey reports, 500,000 b/d above the ceiling agreed in February. This is unlikely to disturb the market, says MEES, because any OPEC volume close to 24 million b/d is seen as satisfactory. Iran and Nigeria were cited as the main overproducers, Iran going 260,000 b/d beyond quota and Nigeria 120,000 b/d. Saudi Arabia was estimated to have averaged 7.98 million b/d, slightly below quota (OGJ, Feb. 22, p. 34).

Nigeria has cut production by 180,000 b/d during the last 2 months in a move to reach its 1.78 million b/d quota, Opecna reports. Secretary of Petroleum Resources Philip Asiodu says the country is trying to lessen its economic reliance on oil, noting increased local demand for petroleum products could leave the country with nothing to export in 10 years.

Meantime, Libya plans to pull out a big part of its oil business and refineries from the European Community. "We don't want to put all our eggs in one basket. Most of our oil business is now in Europe .... If the EC decides to adopt a sanction against us, we'll be hurt badly," said Libya Foreign Minister Mustafa al-Muntasir. The minister is studying Manila and Malaysia as relocation spots and was scheduled to visit Hong Kong, Singapore, and Indonesia this month. He noted the U.S. was a major buyer of Libyan oil until sanctions were imposed after the bombing of a Pan Am airliner over Lockerbie, Scotland, in 1988. News reports say sanctions cost Tripoli's economy $2.5 billion.