OGJ Newsletter

U.S. Industry Scoreboard 8/3 [44,562 bytes] Reports that major OPEC countries were adhering to recent pledges of production cuts helped North Sea Brent crude gain ground on the Singapore International Monetary Exchange (Simex) on July 27. Another report of disagreement between Baghdad and the U.N. over Iraqi crude exports for the purchase of spare parts for the oil industry added to the slightly bullish sentiment in the marketplace, but trading volumes were cautiously low.

Aug. 3, 1998

8 min read

U.S. Industry Scoreboard 8/3 [44,562 bytes]

Reports that major OPEC countries were adhering to recent pledges of production cuts helped North Sea Brent crude gain ground on the Singapore International Monetary Exchange (Simex) on July 27. Another report of disagreement between Baghdad and the U.N. over Iraqi crude exports for the purchase of spare parts for the oil industry added to the slightly bullish sentiment in the marketplace, but trading volumes were cautiously low.

Simex Brent for September delivery closed at a high of $13.13/bbl July 27, gaining 24¢ on the day. October Brent added 29¢ on its close at $13.42/bbl, while the November contract rose 25¢ to settle at $13.70/bbl.

"We are seeing prices move up on affirmative statements from major producers like Venezuela," said a trading source in Singapore. Meanwhile, in London, Brent futures were slightly firmer the same day on the International Petroleum Exchange. Brokers there said the market was consolidating at just above $13/bbl but could move down swiftly on any bearish news.

Some companies' second quarter earnings were hit hard as oil prices continued to fall; others were left relatively unscathed. Early reports of U.S. companies' second quarter 1998 financial results are shown with a comparison for the same period in 1997. Results for 1998 are listed first, in millions of dollars, with losses in parentheses: Chevron 577 vs. 823, Texaco 342 vs. 571, Shell Oil 316 vs. 531, Amoco 287 vs. 622, Occidental 186 vs. 158, Marathon 162 vs. 118, Phillips 158 vs. 307, ARCO 154 vs. 390, Unocal 105 vs. 118, Tosco 100.3 vs. 67.1, Coastal 94.6 vs. 79.3, Sun 92 vs. 105, Kerr-McGee 78 vs. 42, Williams Cos. 60.7 vs. 118.5, Vastar 32.8 vs. 58.3, Dynegy (formerly NGC) 23.4 vs. 32.1, Murphy Oil 22.2 vs. 27.6, Mississippi Chemical 17.8 vs. 23.8, Oryx 16 vs. 23, MCN Energy 10.3 vs. 9.1, Tesoro 9.9 vs. 8, Apache 9.2 vs. 25.7, Frontier Oil 9.2 vs. 4.5, Houston Exploration 5.3 vs. 3.4, Anadarko 2.7 vs. 13.8, Cabot Oil & Gas 2 vs. 17.7, Unit Corp. 1.2 vs. 1.4, Cross Timbers 0.8 vs. 3.7, Santa Fe Energy 0.4 vs. 5.6, Energen (0.085) vs. 3, Pogo Producing (2.7) vs. 9.1, and McMoRan Oil & Gas (7.9) vs. (1.4).

A sample of Canadian companies' second quarter earnings follows, with 1998 results listed first, in millions of Canadian dollars, with losses in parentheses: Imperial Oil 109 vs. 183, Petro-Canada 25 vs. 51, Alberta Energy 5.3 vs. 2.5, Westcoast Energy 1 vs. 32, Amber Energy (0.385) vs. 7.9, Numac Energy (6.5) vs. 2.4, Crestar Energy (14.3) vs. 7.2, and Canadian Occidental (15) vs. 20. Pacific Northern Gas reported 6 month earnings of 4.6 vs. 5.3 in 1997.

Oryx is responding to the current low oil price environment by adopting aggressive initiatives designed to emphasize higher-impact growth regions and operate its other areas for maximum cash flow. Chairman and CEO Robert Keiser said the cost-cutting measures could save at least $1/bbl.

While the company's strategic initiatives remain the same-profitable growth through exploration in the deep Gulf of Mexico and select international areas-the new initiatives include the sale of $35 million of Oryx's U.S. onshore properties in order to maintain debt at about $1.2 billion. Oryx will also reduce staff, primarily in its U.S. onshore operations. The company said it would cut payroll expenses by 20%, or about $14 million/year.

Meanwhile, Houston Exploration has decided to increase its 1998 capital budget by $30 million to $130 million. This increase is designed to capitalize on recent declines in drilling costs and the company's backlog of onshore and offshore drilling opportunities, said Pres. and CEO James Floyd.

"Given the company's extensive inventory of drilling opportunities," said Floyd, "we believe it makes sense to accelerate our drilling program. This contrasts with a number of our peers who are in the process of retrenching and are cutting back on their drilling.''

India is renewing diplomatic relations with Iraq in an effort to build its petroleum sector. The move is seen as an attempt to provide the Indian economy with a cushion against the economic sanctions imposed on it by the U.S. in response to nuclear weapons tests (OGJ, May 25, 1998, p. 19).

Iraq has offered India two potentially lucrative deals in return for New Delhi's support for lifting sanctions against Baghdad. One would allow India to bid for an exploration block near and on trend with Iraq's Abu Khera oil field, and the other would let it exploit Iraq's Tuba oil field.

ONGC Videsh Ltd. (OVL), the overseas unit of India's Oil & Natural Gas Corp., will bid for the exploration block. And a 50-50 joint venture of OVL and private-sector giant Reliance Petroleum will develop the oil field. The projects would require an investment of about $500 million.

ONGC Chairman Bikash Chandra Bora said, "The Tuba oil field could be as big as Bombay High. It is capable of producing 12-13 million metric tons of crude oil per year." India's Petroleum Ministry has prepared a note for the cabinet on participation in the projects.

Royal Dutch/Shell and Occidental have signed a series of agreements to swap some interests in their global E&P portfolios.

Oxy will acquire the assets and businesses of Pecten Yemen Masila (a wholly owned Shell Oil subsidiary) and the stock of Cia. Shell de Colombia (CSC), one of Shell's Colombian E&P subsidiaries. In return, Shell will receive 100% ownership of Oxy's upstream unit in the Philippines, which holds a 50% interest in the SC-38 offshore concession and the Camago/Malampaya gas-to-power project. In addition, Shell will receive all the stock in Occidental Petroleum (Malaysia) and 90% of the stock in Occidental LNG (Malaysia). Oxy will also make a cash payment to Shell. The deal, expected to be concluded within 45 days, would increase Shell's reserves by about 60 million boe. The acquisition in the Philippines will bring Shell's share in SC-38 to 100%.

Natural gas from Burma's Yadana gas field began flowing, albeit a month behind schedule, to Thailand last week, according to the Petroleum Authority of Thailand (PTT). But flow rates are only 5-10 MMcfd, which is significantly lower than the minimum 65 MMcfd expected. The Electricity Generating Authority of Thailand was blamed for failing to install units at Ratchaburi power station, which is the sole customer for the Yadana gas.

PTT Gas Pres. Piti Yimprasert said Yadana gas flow is expected to stay at 5-10 MMcfd for 3-4 months, until the first two 200-MW gas turbines destined for the Ratchaburi plant are commissioned. The contract requires PTT to gradually raise its offtake of gas from Yadana, about 240 km south of Rangoon in the Gulf of Martaban, to a plateau level of 525 MMcfd, 15 months after production start-up.

The European Union has given the all-clear to Exxon Chemical, Shell Petroleum, and Shell Chemical for a planned merger of their worldwide petroleum additives businesses. The oil majors' two additives units account for about a quarter of a $6 billion/year market worldwide.

The 50-50 joint venture was expected to be operational in 1997, but is now anticipated to be up and running early in 1999 (OGJ, July 15, 1996, p. 30). The venture will be named Infineum. The firms are now awaiting U.S. Federal Trade Commission and other governmental and regulatory approvals.

Enron has formed a new water utility company and made a $2.2 billion bid to take over Wessex Water, which provides water supply and waste-water removal and treatment in Southwest England.

Enron Chairman and CEO Kenneth Lay said: "The development, ownership, and operation of water infrastructure is a logical extension of Enron's expertise developed in the world energy business. Currently, there are only a handful of large private-sector companies operating in the $300 billion worldwide water market, and there are tremendous opportunities for future growth as the water industry moves toward privatization and consolidation."

Meanwhile, Enron Europe formed a 50-50 joint venture with Romanian state firm Petrom to market Romania's gas production, currently 400 MMcfd. The new company, Petrom-Enron Gas SRL, will be headquartered in Bucharest.

U.S. motorists have reaped the lowest gasoline prices on record, according to the Energy Information Administration. As of July 27, retail regular gasoline prices averaged $1.05/gal, about 14.5¢ cheaper than at this time last year. Adjusted for inflation, spring gasoline prices averaged $1.005/gal.

EIA also said that, as gasoline prices have fallen, consumers have opted for higher grades: sales of premium gasoline rose 7% in April from a year ago.

Canada has withdrawn a trade ban on the gasoline additive MMT and paid its U.S. manufacturer $13 million in compensation. Ottawa agreed to an out-of-court settlement with Ethyl Corp. for legal costs and lost profits incurred since the ban was approved 15 months ago. Ethyl had launched a $350 million lawsuit based on provisions of the North American Free Trade Agreement.

A Canadian internal trade panel ruled four-to-one that Ottawa had violated a federal-provincial agreement on internal trade because it denied a legal product fair market access. A statement by Ottawa said the anti-MMT legislation was based on arguments by auto makers that MMT interferes with operation of antipollution devices. But the statement added there is no proof this is the case or that MMT harms the environment and is a health hazard.