OGJ Newsletter

May 11, 1998
U.S. Industry Scoreboard 5/11 [44,073 bytes] Industry continues to push the envelope on the world's deepwater prospects. Petrobras is shifting even more of its already-heavy emphasis on the deepwater Campos basin off Brazil to even deeper waters. In a presentation at OTC last week (see related story, p. 27), Petrobras official J.E. Gontijo noted that his company expects to boost its oil production to 1.5 million b/d by 2000 from 1 million b/d today. Of that projected figure, more than 60%
Industry continues to push the envelope on the world's deepwater prospects.

Petrobras is shifting even more of its already-heavy emphasis on the deepwater Campos basin off Brazil to even deeper waters. In a presentation at OTC last week (see related story, p. 27), Petrobras official J.E. Gontijo noted that his company expects to boost its oil production to 1.5 million b/d by 2000 from 1 million b/d today. Of that projected figure, more than 60% will come from deep (400-1,000 m) and ultradeep (greater than 1,000 m) waters.

By 2004, Brazilian output is expected to jump to 2 million b/d, with deep and ultradeep waters accounting for 75% of the total. Now, Petrobras is eyeing new prospects in waters deeper than 2,000 m.

Furthermore, increasing Campos production will result in a heavier crude slate for Brazilian refineries. Petrobras faces a decision: whether to reconfigure its refineries to take the lower-gravity crudes or to export some of those heavier crudes and import refined products in lieu of the refinery revamps.

In other late presentations at OTC last week, a panel agreed that industry will see even more joint research between companies in the future.

The speakers, discussing technology's role in reducing costs and cycle times, said oil firms need to share the risk of developing technology in the current economic environment.

Bob Black, a Texaco senior vice-president, said, "Industry has overplayed the value of developing proprietary information, and the half-life of its benefit has been getting shorter and shorter...The real value of technology occurs when you apply it to an operation," and companies' real challenge is to apply it quickly.

OTC also spawned some insights into today's oil price situation, even if low oil prices got little attention amid current euphoria over the offshore sector.

"OPEC lite" might describe Norway's plan to cut oil production the rest of the year.

Haakon Giil, deputy minister of the Norwegian oil ministry, said at OTC last week in Houston that, as of May 1, the country has implemented plans to cut oil production by 3%, or about 100,000 b/d, in line with OPEC's plan to reduce output and shore up prices.

But there are some catches. Norway will continue the reduction only if it produces results. It will apparently only cut anticipated production increases, which would result in 1998 production averaging 3.15 million b/d, the same as last year. Statfjord field production will not be cut because of U.K. co-ownership in the field. Giil would not say how Norway will ascertain whether the cut is creating the desired effect.

Asked if Riyadh would be impressed with the move, Karl-Edwin Manshaus, secretary general of Norway's oil ministry, said, "No."

Oil traders' disappointment with OPEC's efforts to reel in production has forced oil prices lower. Traders last week sold off oil contracts following reports that OPEC had fallen short of its goal announced in late March to cut oil output by 1.2 million b/d. Nymex June crude fell 10¢ to close at $15.37/bbl May 6. Brent also fell 15¢ before settling at $14.49/bbl.

There is continuing disagreement about the best strategy for exporting crude oil from Central Asia (OGJ, May 4, 1998, Newsletter). A representative of one of the major stakeholders in the issue spoke up for the multiple-pipeline approach early this month.

H.E. Bolat Nurgaliyev, Kazakhstan ambassador to the U.S., said one pipeline to export crude oil from central Asia "will not provide sufficient capacity to meet Kazakhstan's needs." Kazakhstan has the bulk of crude oil reserves in the region. Nurgaliyev, in Houston for the Asia Society Texas Center's conference on Asian energy, said "ellipsemultiple pipelines will allow for regional sharing, lower costs, and diversification of supply" in addition to providing needed export capacity. Several pipeline options being considered will take 2-10 years to complete.

Transportation issues are critical and are a key part of Kazakhstan's "strategy 2030," said Nurgaliyev. That plan sets goals for E&D and transportation that will depend heavily on long-term partnerships with majors to attract the best technology.

There has been no pullback from the overall policy of entering into partnerships with foreign firms, said Nurgaliyev, but those firms "will be expected to take into account Kazakhstan's concerns about ecology and employment."

Accelerated infrastructure development is also a key component of the country's long-term strategy.

Apparently, the U.S. government is near a decision on whether to slap sanctions on France's Total, Russia's Gazprom, and Malaysia's Petronas after the three state firms signed a $2 billion deal to develop Iran's South Pars gas field. (OGJ, May 4, 1998, Newsletter).

Undersecretary of State for Economic Affairs Stuart Eizenstat said the matter could be resolved before the U.K. ends its term on July 1 as EU president. Other U.S. government sources say a deal could come as early as May 18, when President Clinton travels to London for the U.S.-E.U. summit.

The use of sanctions may hinge on whether the U.S. is satisfied with a joint plan to hinder Iran's efforts to develop weapons of mass destruction that can be hammered out among U.S.-E.U. members and Russia.

Meanwhile, Iran plans to lay a $400 million, 300-km pipeline to transport crude oil from Neka on the Caspian Sea to refineries at Tehran and Tabriz, Iranian newspapers reported.

The project would take about 30 months to complete, and Iranian officials laud it as the most economic method to export oil from the Caspian. The U.S. opposes a route through Iran, and U.S. companies have signed a deal with Turkmenistan to begin feasibility studies to transport Turkmen oil through a subsea pipeline. Similar agreements were reached with Azerbaijan.

Tensions between the U.K. and Argentina over the Falkland Islands are resurfacing.

Offshore exploration is under way around the U.K.-ruled Falklands, with Argentina demanding 3% royalties in the event of any discoveries.

Argentina continues to claim the Falklands (which it calls the Malvinas Islands), although the country lost a brief war with the U.K. in 1982 over the islands. U.K. officials reportedly rejected Argentina's demands to "tax companies licensed by the rightful authorities."

Four operators are involved with exploration there: Amerada Hess, Royal/Dutch Shell, Lasmo, and International Petroleum Corp.

Rescuers are still searching for more survivors after an Occidental Petroleum plane crashed May 6 in Peru's Amazon jungle with 87 passengers. Thirteen were rescued. The plane was carrying workers from Iquitos, Peru, to Andoas, an oil camp in a remote jungle near the Ecuadorian border. Cause of the crash is unknown.

The debate over greenhouse gas emissions levels and support for the Kyoto global warming treaty continues.

Alberta won't support Canada's ratification of the Kyoto pact unless the U.S. government approves the accord (see related story, p. 42).

Energy Minister Steve West said it is unlikely that the U.S. will ratify the Kyoto agreement. Canada agreed at Kyoto to reduce emissions to 6% below 1990 levels by 2008-12. Canadian Energy Minister Ralph Goodale is optimistic. He expects that the U.S. and Canada's other trading partners will ratify the Kyoto deal. He said Canada fully intends to honor its commitments at Kyoto.

Alberta wants to continue with a voluntary reduction program. It also wants credits for efforts that reduce emissions, such as wind power and gas exports, and sale of tradable pollution permits.

Norway's Storting (parliament) is to debate a new bill setting out "green" tax proposals, plus a white paper charting Oslo's follow-up to the Kyoto climate change protocol.

Statoil says the tax plan includes a duty of $14/ton of CO2 emitted by industrial plants, including Statoil refineries and oil and gas terminals. Statoil reckons it faces an extra tax bill of $28 million/year if the bill goes through, threatening investment plans in Norway. The company is lobbying for international emissions permit trading as the best means to achieve required cuts in greenhouse gas emissions.

Reorganization, restructuring, and improving customer service-trends that have helped keep U.S. companies competitive-are also working for associations.

API is planning major organizational changes. Pres. Red Cavaney says API's functions will be split into six industry groups, and members will be able to pick and choose services they wish to buy.

API will try to take more of a leadership role in the oil industry and work with other associations to eliminate any duplicative activities. It also wants to improve the public's perception of the industry. Cavaney said, "API is optimally configured to serve large integrated companies" but restructuring is needed to reflect this era of joint ventures and decentralized decisionmaking.

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