OGJ Newsletter

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Ashland Chairman Paul Chellgren cites "early synergies" from his company's refining/marketing joint venture with Marathon that underpinned profits quadrupling to $28 million for the quarter ended in March (Ashland's fiscal second quarter) from the same time a year ago.

And low oil prices are putting more pressure on companies to shed E&P assets while cutting capital spending.

Sonat is undergoing a major restructuring that involves property divestitures, elimination of some subsidiaries, and other cost-reduction efforts. Sonat posted first quarter earnings of $38 million vs. $69.9 million a year ago.

Following Sonat's acquisition of Zilkha Energy in January, the company decided to sell all of its Austin chalk and Arkoma basin properties and almost all onshore Gulf Coast properties. The divestitures equate to production of about 200 MMcfd of gas equivalent, about 24% of the company's total.

Sonat will hold on to properties acquired in the Zilkha merger, including those in the Cotton Valley Pinnacle reef trend. Sonat will consolidate seven business units into three and lay off about 220 people.

Nuevo Energy is putting some East Texas gas properties up for sale and slicing $45 million from its 1998 capital budget of $196 million.

Nuevo has also changed its accounting methods for oil and gas properties from full cost to successful efforts effective Jan. 1, to present a balance sheet that more closely approximates the company's value. The cumulative effect results in an after-tax reduction of stockholders' equity by $64.1 million.

A comparison of 1998 and 1997 first quarter earning for a sample of U.S. companies follows, with 1998 results listed first, in millions of dollars and losses in parentheses: Chevron 500 vs. 831; Amoco 386 vs. 674; Conoco 287 vs. 331; Texaco 259 vs. 492; Phillips 243 vs. 227; ARCO 220 vs. 483; Enron 214 vs. 222; Oxy 177 vs. 179; Shell Oil 172 vs. 517; Coastal 122 vs. 10.6; CNG 77.9 vs. 171.5; Vastar 48 vs. 62.9; Triton 42.7 vs. 3.3; Questar 40.9 vs. 41; Kerr-McGee 24 vs. 70; Apache 17.4 vs. 52.9; Murphy Oil 15.5 vs. 30.6; Anadarko 7 vs. 34.4; Barrett 6.2 vs. 9.9; Tesoro 6.1 vs. 6.1; Ocean Energy 4.8 vs. 21.4; Stone Energy 3.3 vs. 3.6; Seagull 3.2 vs. 17.3; Oryx 3 vs. 66; Berry 2.1 vs. 4.8; St. Mary Land 1.67 vs. 5.3; Evergreen 1.4 vs. 0.9; Comstock 0.6 vs. 7.8; Basin 0.2 vs. 0.01; Santa Fe Energy (0.3) vs. 17; Bellwether (0.4) vs. 1.5; Petro Corp (0.6) vs. 1; Wainoco (0.8) vs. (3); Forest (1) vs. 4.5; Forcenergy (1.6) vs. 11.2; Giant (1.7) vs. 1.1; Louis Dreyfus (2) vs. 14; Kelly (4.8) vs. 1.7; Vintage (6.6) vs. 21.1; TransTexas (18.8) vs. 18.1; EEX (19) vs. (2); Benton (21) vs. 8.6; and Belco (59.4) vs. 11.9.

Despite the sting of low oil prices, two major producing U.S. states have gotten a lift from proposals to boost their oil production.

Alaska's Supreme Court has approved a new lease agreement between the state and BP, flashing a green light to development of Northstar oil field in the Beaufort Sea. Former field owner Amerada Hess never developed the field because of net profit share lease terms that, in 1979, had anticipated continued rising oil prices but soon became uneconomic when prices declined. It sold the leases in 1995 to BP, which sought to scrap the net profit terms in favor of a royalty accord. This was approved by the state, and work got under way until a local group filed suit to block the deal as illegal. A lower court found the state acted properly on the BP proposal, and that ruling was appealed unsuccessfully. Production from the 145 million bbl Northstar field is expected to start up by early 2001.

Kansas oil fields are capable of producing another 25,000-50,000 b/d, mainly with application of CO₂ flooding. (The state now produces about 114,000 b/d.) That estimate comes from Shell CO₂ Co. Ltd., which notes that Kansas oil provinces-notably Morrow, Arbuckle, and Lansing-Kansas City fields-have geological and reservoir characteristics common to Permian basin fields and to Oklahoma's Postle field that make them ideal for CO₂ applications.

What's needed, says Shell CO₂ Pres. R.T. Bradley, is participation by industry, academia, and government: "As project champion, Shell will collect and analyze data and design demonstration pilots, and the operators will participate with their fields and share in the risks and rewards. We also hope the Kansas University Energy Research Center will help with field analysis and the state of Kansas will follow the actions of other states by contributing tax incentives that encourage incremental oil recovery."

Shell will organize a group to start evaluating Kansas' CO₂ potential and selecting a demonstration pilot at an Aug. 24-26 meeting that coincides with Kansas Independent Oil & Gas Association's annual meeting in Wichita.

U.S. gas producers and pipelines have a window of about 2 weeks in which to make their views known to the U.S. Trade Representative on Mexico's proposal to accelerate phaseout of its tariff on gas imports, by more than 3 years to October 1999, in exchange for the U.S. immediately dropping its tariff on imports of Mexican PTA (OGJ, Apr. 13, 1998, Newsletter). So says George Baker, Mexican Energy Intelligence, Houston.

The Mexican proposal may be rejected because of opposition by several U.S. PTA producers, Baker warns, and there won't be another opportunity for 3 years. With the tariff in place, he contends, U.S. producers and pipelines likely won't be able to compete with Pemex-sourced gas in Mexico, leaving 100% of the country's industrial gas market in the state oil company's hands despite a new policy of open access for third-party transportation on its network.

More signs of likely OPEC cuts at the June ministerial meeting in Vienna are emerging. In an interview with Middle East Economic Survey, Saudi Oil Minister A* al-Naimu says OPEC may have to cut output by another 500,000 b/d if oil prices remain low. That is the same volume Venezuela recently cited as a target for cuts if low oil prices linger (OGJ, May 4, 1998, Newsletter). And Kuwait says it will lobby for cuts at the OPEC meeting, singling out Venezuela and non-OPEC member Mexico to "respond favorably" to the idea of further cuts.

While OPEC members cut output by about 900,000 b/d in April, MEES notes, overproduction by Iran and Iraq to make up for earlier shortfalls left the group's overall net cut at only 475,000 b/d. MEES estimates Venezuela cut output by 220,000 b/d in April but contends OPEC's last remaining Latin American member still is exceeding quota by 500,000 b/d.

U.S. sanctions becloud some key petroleum projects (see editorial, p 13., and stories, pp. 18-19).

Iran has invited international bidding for construction of an oil pipeline from the Caspian Sea to the Persian Gulf, according to local reports.

National Iranian Oil Co. says the 392-km, $300-400 million pipeline would be financed through exchanges of Iranian oil. Construction of the 380,000 b/d pipeline is to take 2 years and start by March 1999. The U.S. opposes any trans-Iranian pipeline scheme for exporting Caspian oil.

Qatar is concerned about fallout from the economic sanctions recently imposed by the U.S. against India in response to nuclear tests. The U.S. move could hurt Qatar in its bid to sell LNG to India.

Two U.S. firms-Mobil and Enron-are involved in projects aimed at exporting Qatari LNG to India. Mobil is a 26.5% owner of RasGas (OGJ, Apr. 27, 1998, p. 33), which India's Petronet has shortlisted to supply 7.5 million metric tons/year of LNG starting in 2002. Enron is negotiating with Qatar to launch an LNG project to export 5 million tons/year to India starting in 2001 (OGJ, Mar. 16, 1998, Newsletter).

Asia's lingering economic crisis continues to cast a pall over Thailand's petroleum sector. Chevron and state-owned Petroleum Authority of Thailand (PTT) have postponed their aromatics project in Thailand (OGJ, Mar. 16, 1998, p. 46). PTT executive director Viroj Mavichak says the project will be delayed for 2 years beyond its scheduled 2000 opening because demand for paraxylene, a key product of the proposed plant, has crumbled with Thailand's economic downturn.

Thailand is following the International Monetary Fund's advice to help kick-start the country's economy. PTT Exploration & Production plc shareholders are considering a proposal to double foreign ownership to 40% of PTT's upstream arm. Shareholders also agreed to boost capitalization by a 16 million share offering in addition to the 16.5 million shares that PTT must divest under a cabinet order earlier this year.

Greenpeace once again is on the warpath to halt exploration of Europe's Atlantic Margin.

The group's Stahlratte two-masted schooner left Oslo May 19 to head for an area where Statoil is drilling. Greenpeace's MV Arctic Sunrise is to set sail for the Arctic at the end of May to beef up the protests, and this will be followed by MV Greenpeace, which disrupted oil exploration off Northwest Scotland last year.

Wiser now to the ways of environmental protest, U.K. Offshore Operators Association has called a media briefing for May 27 on Atlantic Margin exploration. Ukooa will line up a panel of key industry figures to explain oil company activities and to highlight environmental protection measures.

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