OGJ NEWSLETTER
OPEC discipline and a strong first quarter earnings performance brighten the day for oil and gas companies.
Further output cuts by OPEC are no longer essential to support the market, says Centre for Global Energy Studies (CGES), London, unless the February agreement starts to fall apart (OGJ, Mar. 15, Newsletter). March oil price resilience suggests the market has made inroads into the stock overhang that has depressed prices since fourth quarter 1992, CGES contends.
OECD oil demand grew 2% in February after falling 5% in January. While OPEC failed to cut production to its 23.6 million b/d ceiling after Mar. 1, its cut to 24.2 million b/d for March from 25.4 million b/d in February appears to have balanced the market.
"While most OPEC members made cuts during March, only Saudi Arabia and Indonesia dropped to their agreed output levels," said CGES. "Kuwait got close at 1.65 million b/d and is expected to reach its quota level soon. Iran, however, is still thought to be well above its quota, though this was hotly denied by the Iranian oil minister."
With the average OPEC basket price expected to hover at about $18/bbl through the year, CGES says it will he difficult to persuade other OPEC members to make further sacrifices, unless prices start to fall again.
"As long as OECD oil demand continues to improve, the market ought to be able to live with current OPEC production levels.
"Should OPEC also be prepared to tolerate the partial compliance of some of its members, prices could even recover, but if Kuwait implements its threat to raise production because of leakage by other members, the price outlook could still be very different."
The OECD oil demand outlook hinges on growth in U.S. demand, which CGES pegs at 300,000 b/d, or 1.8%, in 1993, with economic recovery overcoming the dampening effect of the proposed BTU tax.
Restructuring and cost cutting moves in 1992, with an added boost from strong natural gas prices, are paying off in buoyant first quarter earnings for U.S. companies. For the period, Chevron reports a drop of $200 million, or 11%, in operating and G&A costs and notes its operating costs the past 6 months have averaged $6.69/bbl, down 720/bbl from 1991 and ahead of goal of 500/bbl reduction by mid-1993.
In most cases, losses reported-in last year's first quarter were earnings restated to reflect accounting changes or other special charges. The following are reports of first quarter net income, with amounts in millions of dollars, the current year's quarter listed first, and losses in parentheses:
Exxon 1,183 vs. 1,295, Chevron 501 vs. (301), Mobil 490 vs. 213, Texaco 278 vs. (68), ARCO 260 vs. (212), Conoco 232 vs. 113, Amoco 229 vs. (619), Enron Corp. 146.2 vs. 115.8, Fina 83 vs. (40), Occidental 80 vs. (137), Phillips 61 vs. (149), Murphy 39.2 vs. 23.3, Enserch 38 vs. 34, Amerada Hess 32.9 vs. (23.4), Marathon 31 vs. (307), Equitable 30.8 vs. 26.2, Union Texas 26 vs. (47), Coastal 25 vs. (6), Kerr-McGee 24.4 vs. (59.6), Unocal 11 vs. 40, Apache 11.6 vs. 4, Pogo 7.2 vs. (1.2), Snyder 6 vs. 7, Maxus 0.2 vs. (38.3), LL&E 2.9 vs. (25.9), Noble Affiliates 4.5 vs. 2.6, Seagull 3.9 vs. 0.7, Plains Petroleum 1.4 vs. 2.4, and Santa Fe Energy (0.4) vs. (8.8).
Chevron and partners face one last test in securing the right to tanker Point Arguello crude on an interim basis after scoring another victory last week. California State Lands Commission (SLC) approved extension of the lease to the Gaviota marine terminal off Santa Barbara County, despite charges by an environmental coalition that Chevron's double hulled Oregon class tankers-two of which are slated for Arguello transport-have a history of accidents. SLC staff disputed the charges, and the commission approved throughput of 100,000 b/d, double the tankering volume permitted by California Coastal Commission (CCC) earlier this year (OGJ, Feb. 15, p. 40). The remaining hurdle is a CCC hearing May 12 of the Santa Barbara Environmental Defense Center's request to revoke the CCC permit.
EPA Administrator Carol Browner has named a task force to develop a policy to focus more attention on pollution prevention.
The policy will require EPA to use pollution prevention as the principle of first choice in all regulatory development, permitting, and enforcement actions. EPA will work to persuade industry to adopt environmentally sound processes and practices that produce less pollution.
Leon Panetta, director of the Office of Management and Budget, last week said the North American Free Trade Agreement with Canada and Mexico is "dead" for the present. He explained Nafta lacks votes for congressional passage and faces increasing attacks from former presidential candidate and chief Washington gadfly Ross Perot. The next day the White House stressed Nafta "is alive and well," noting side treaties on jobs and pollution are being negotiated that will ease congressional opposition.
Ottawa has asked the National Energy Board to delay approval for several Canadian pipeline expansion projects by Westcoast Energy Inc.
The projects are part of a $1.5 billion, 5 year expansion program to serve growing U.S. gas markets. The federal department of fisheries and oceans and environmental groups say approval should not be granted before completing a federal environmental assessment (EA), claiming lack of data about environmental effects of the projects in Westcoast's applications. NEB granted a Westcoast request for a May 5 hearing, but the company says it can't do EAs until late May or early June.
More Canadian upstream assets are changing hands. Encal Energy, Calgary, agreed to acquire certain Husky oil and gas assets in western Canada for $103 million (Canadian). The deal involves proved and probable reserves of 170 bcf of gas and 8.8 million bbl of liquids, 252,000 net undeveloped acres, and 6,000 line miles of seismic data. Encal will start a $20 million capital program after the deal closes May 31.
Privatization continues to spark a drilling surge in South America.
Parker Drilling is reentering the rapidly privatizing Argentine market with purchase of five Argentine rigs from state owned YPF and three contracts for 48 wells in the Comodoro Rivadavi area of southern Argentina. In Peru, another petroleum producer in the throes of privatization, Parker will drill three wells on Oxy's Block 1AB. Meanwhile, in Colombia, Parker drilled an appraisal and spudded an offset on American International Petroleum's Puli anticline discovery in the Magdalena River Valley and could drill as many as four wells for state owned Ecopetrol along Colombia's northwest coast.
U.K. treasury ministers will study proposals aimed at bringing transitional tax relief to oil and gas exploration companies, which cannot plow back exploratory and appraisal drilling cost following tax reforms (OGJ, Mar. 22, P. 31). John Butterfill, a conservative member of Parliament, tabled an amendment to the finance bill, under which the tax reforms became law, that's designed to maintain tax relief for exploratory drilling. A House of Commons debate is likely in early May.
Russia is trying to slow the decline in Volga-Ural region oil production by developing small fields found in Kirov province more than 25 years ago. Itar-Tass says work has begun in Zolotarevskoye field, one of two deposits found near Vyatka River, a tributary of the Kama River north of Tatarstan. Zolotarevskoye reserves are estimated at only 29.2 million bbl, but new exploration indicates the province's speculated oil resources exceed 750 million bbl. Zolotarevskoye development is to be carried out by Russia's ministry for fuel and energy and Vyatskaya Oil Co.
Russia may conclude a new trade pact this year for delivery of more natural gas to Finland. It hinges on construction of underground storage in Finland and extension of Finland's gas grid west to the city of Turku and other areas along the Gulf of Bothnia. Moscow, in turn, wants to buy more Finnish mobile drilling rigs for use in the Barents Sea plus other Finnish equipment and supplies for onshore oil and gas work. Finland imported 87.5 bcf of Russian gas in 1992.
Iran and India have agreed to a proposed $4 billion natural gas pipeline linking the two countries. Iran says it is willing to find financing for the project and notes Japan is interested in it. Details of the agreement, which emerged from an Apr. 22 meeting of Iran's minister for heavy industry and India's finance and external affairs ministers, remain sketchy. India's Tata Energy Research Institute is preparing a study on the proposal.
India recently signed a similar agreement with Oman for a proposed 1,400 km gas line linking the two (OGJ, Mar. 22, Newsletter).
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