OGJ NEWSLETTER

U.S. petroleum companies' third quarter earnings are mixed, and many are feeling a bigger. bite from increased federal taxes.

For many integrated firms, refining/marketing results, notably in the U.S., improved from a year ago. Chevron's U. S. 1993 third quarter R&M profits jumped to $164 million from $69 million last year. Downstream improvement was partly offset by lower upstream results pulled down by sliding oil prices. ARCO noted a 25% drop in its U.S. oil prices in a year to year comparison. Higher gas prices and volumes in turn partly offset the oil price slippage. Chemicals results generally remained depressed. Several firms cited a higher federal tax bite and took charges against earnings as a result. Chevron's earnings plunged by $145 million because of tax related charges, while Oxy's tax bill in the third quarter jumped $135 million and it took a $55 million charge. Tax related charges also were reported by Texaco $32 million, Coastal $29 million, and Transco $1.6 million.

Here's a sample of third quarter earnings, in millions of dollars, with 1993 period listed first and losses in parentheses: Mobil 666 vs. 413, Amoco 520 vs. 496, Chevron 420 vs. 467, Texaco 317 vs. 325, Sun 114 vs. (320), Oxy 71 vs. 84, Unocal 70 vs. 11, ARCO 68 vs. 332, Ashland (fiscal fourth quarter) 67 vs. (103), Phillips 41 vs. 105, Tosco 27.9 vs. 4.6, Freeport McMoRan 26.8 vs. 123, Kerr-McGee 18 vs. 29, Williams Cos. 18 vs. 18.6, Equitable 8.6 vs. 7.2, Pogo 7.2 vs. 5.5, Cabot 2.5 vs. 1.8, Coastal (11.4) vs. 21.7, Union Texas (1 3) vs. 2 1, Transco (I 8) vs. 0. 3, and Amerada (22.4) vs. 8.7.

U.S. DOE Sec. Hazel O'Leary, under fire from U.S. independents (see Watching Washington, p. 30), has asked National Petroleum Council to prepare by Dec. 1 an analysis of how the 1990 Oil Pollution Act's oil spill insurance requirements could crimp offshore production.

Interior Asst. Sec. Bob Armstrong told NPC his agency, which is implementing OPA regulations, is aware of insurance problems the law could cause the offshore oil industry. He said insurance officials told him industry cannot underwrite more than 300 offshore ventures at the required $150 million level of insurance, adding, "There simply may not be enough insurance to go around." Meantime, a DOE official told NPC O'Leary wants to fill vacancies on NPC-dominated by top officers of major and independent oil companies-with a few "reasonable and thoughtful environmentalists."

Look for significantly beefed up enforcement of environmental laws from the Clinton administration, says NatWest Washington Analysis. EPA disclosed late last month a reorganization of its enforcement office designed to empower the agency to take strong enforcement actions against violators.

This reconsolidates functions of the enforcement office, fragmenter under Reagan's EPA Administrator Anne Burford. Under the new framework, to be implemented the next 4 months, EPA will focus on coordinated enforcement within key economic sectors such as energy and transportation. EPA's enforcement efforts also will be coordinated with a new environmental emphasis at Department of Justice, says NatWest. DOJ officials say enforcement of environmental laws will be a key priority for Atty. Gen. Janet Reno. DOJ plans to expand its staff of environmental attorneys by more than 50%.

The Clinton administration says the Canadian Liberal party's sweeping victory in the House of Commons last week is no reason to renegotiate the North American Free Trade Agreement, even though the party's platform contained an anti-Nafta plank. The U.S. House of Representatives is headed toward a close vote on Nafta Nov. 17. The administration said it might accept a proposal that it review Nafta's operation after 3 years. If by then the pact has cost U.S. jobs, the U.S. would withdraw from it.

Nova sees its market's supply/demand outlook as tight but manageable this winter. Nova's Alberta gas transmission system delivered 2.791 tcf the first 9 months of 1993, up 11.9% from the same period in 1992, with much of the added volumes delivered to eastern markets in the U.S. and Canada. Deliveries averaged 10.23 bcfd. Nova projects Nov. 1-Mar. 31 volumes at 11.4 bcfd, up from 10.5 bcfd last winter. Helping accommodate increased demand this winter are higher gas prices, increased Alberta drilling, and improved gas storage and inventory flexibility.

Western Gas Marketing, Calgary, negotiated a new deal with its major Ontario gas customer that provides for a 36% price hike, the first for Ontario buyers in 8 years since Canadian gas market deregulation.

Consumers Gas, Toronto, will pay Western's 730 member supply pool about $2.32 (Canadian)/Mcf vs. a 1992-93 price average of $1.70/Mcf. Producers and Alberta are expected to get a $67 million/year jump in revenues from the new deal. The new contract calls for deliveries of 108 bcf/year for 10 years with prices indexed to Nymex futures.

Continued strong drilling activity is predicted for western Canada in 1994 by industry groups and analysts. Canadian Association of Oilwell Drilling Contractors (Caodc) forecast 9,000 wells will be drilled next year, up from an expected 8,800 wells in 1993. Caodc said the 1994 forecast takes into account a possible drop in oil prices, with natural gas the main target for drilling and gas prices expected to remain firm. Petroleum Services Association of Canada predicts activity and employment in 1994 will match 1993 levels. PSAC said higher activity in 1993 increased oil field service jobs by 20% from last year to 15,000. Peters & Co., Calgary, forecasts Alberta wellhead prices at $1.65-2/Mcf in 1994. Ziff Energy Group., Calgary, said weak oil prices could put a ceiling on new price gains for gas in industrial markets where the fuels are competitive. Ziff also said Pacific Gas Transmission's 75% expansion of its Alberta-California gas pipeline coming on stream Nov. I likely will be the last major export pipeline expansion, with future expansions limited to smaller projects to serve market niches.

Wood Mackenzie predicts fourth quarter Norwegian oil production will surge past 2.6 million b/d with new oil flowing from Brage and Draugen fields (see story, p. 23). Norwegian production averaged 2.27 million b/d in first half 1993, up 5% from the same period last year. U.K. offshore oil production averaged 1.75 million b/d in the first half. Rising production from Piper and Bruce fields plus new production from Scott, Hudson, Gryphon, and Tiffany fields will push the year's average to 1.9 million b/d, Wood Mackenzie said. Arthur Andersen predicts U.K. oil production will peak at 2.5-2.8 million b/d in 1996, barring project delays, then decline.

State owned Philippine National Oil Co. has invited tenders for 40% of refining and marketing unit Petron Corp. Deadline is Dec. 15.

PNOC seeks a strategic partner that can give Petron technical expertise and access to petroleum supplies. Petron holds 40% of the Philippine petroleum products market, with sales of 40.7 billion pesos ($1.42 billion)/, ear. BP, Saudi Aramco, and Malaysia's Petronas are reported interested in bidding.

Uganda's Ministry of Natural Resources is opening almost 10% of the country to oil and gas exploration.

A total 22,000 sq km of exploration acreage in Southwest Uganda is being offered to oil and gas companies under production sharing licenses. The acreage lies in the western arm of the East African rift system, which extends from the Nile Valley south through Lake Albert and the Semliki flats to Lake Edward. Simon Petroleum Technology (SPT), Llandudno, U.K., is coordinating a promotion campaign and will set up meetings with companies in London and Houston in November and December. Aeromagnetic surveys of the Uganda acreage and adjoining territory in Zaire and Rwanda were carried out in the early 1980s. In 1991 Petrofina took up a license to explore much of this territory but relinquished the license this year, SPT said.

Although there has been no oil production in Uganda, SPT said, "There are serious indications of hydrocarbons on the surface of Lake Albert."

Yemen is preparing to extend exploration deadlines in Shabwa region oil concessions following poor drilling results.

This will give companies more time to complete and evaluate findings without incurring further exploration commitments, reported Middle East Economic Survey (MEES). Salih Abu Bakr Bin Hussainoun, Yemen's oil minister, told MEES the picture of hydrocarbon prospects in Shabwa is incomplete, despite the number of companies working there. "This is because the geology of Shabwa is complicated and the time provided for in the production sharing agreements, whether in the first or second exploration periods, is insufficient for the companies to complete their seismic, drilling, and evaluation commitments," said Hussainoun. MEES reported recent Shabwa drilling yielded 23 dry holes and some minor oil and gas shows. MEES said the ministry has started talks with Exxon Corp. to take over from Sun, which reportedly wants to relinquish its blocks. Oxy is said to have moved on to the second exploration period. Shell and Crescent have current permits until January, BP until November 1994, and Chevron January 1995.