OGJ Newsletter

• U.S. Industry Scoreboard 2/2 [44,642 bytes]

The crisis is causing Shell to consider temporarily idling one of the crude distillation units at its 405,000 b/d Singapore refinery.

Slumping demand is prompting the company, which operates Singapore's largest refinery, to contemplate the drastic measure of shuttering a 110,000 b/d crude unit. The idea is gaining ground among top Shell executives, who have lost hope of a recovery for refining margins because of the region's current woes.

The crisis also has triggered a slide in paraxylene (PX) prices. At $500/metric ton last April and $625/ton in June, PX prices have fallen to $350/ton in recent trading. The crash in PX prices has forced India's Oil & Natural Gas Corp. (ONGC) to shelve a $515 million PX project. Paraxylene is the feedstock for purified terephthalic acid (PTA) and dimethyl terephthalate (DMT).

Industry analysts say that shelving the project was the best option for ONGC, given widely fluctuating PX prices, and given that ONGC has neither experience in setting up such a project nor captive consumption of the product.

The price fall will offer relief to India's biggest PX consumer-Reliance Industries, a major manufacturer of PTA. This is especially so as Reliance has been facing enormous pressure on prices of PTA and synthetic fiber, which continue to fall. If PTA prices remain weak, Reliance, which is planning a 1.4 million ton/year PX unit, may prune the plant's size, say industry analysts. This is because demand for PX is intrinsically linked to that for PTA/DMT, which in turn depends on demand for polyester. When Reliance's PX unit starts up in 1999 or 2000, an ensuing supply/demand imbalance may force the company to export the surplus. But, because realizations in the export market are relatively low, Reliance may face a drop in profit margins from PX exports.

In another example of the gathering gloom in Asia, the Philippine Central Bank has asked IMF to extend until the end of March its extended fund facility (EFF) program because of dire economic conditions in the region.

The country is seeking more time to fulfill its commitments under the EFF program. Gabriel Singson, governor of the Philippine Central Bank, said the extension would allow the country's congress to enact an oil industry deregulation law that has already been approved by both chambers. The program, set to expire last June, was extended for 6 months. The Philippines is likely to get $345 million in IMF aid if it complies with terms of the EFF program.

Early reports of U.S petroleum companies' 1997 financial results reveal record earnings for a fair number of companies.

A comparison of 1996 and 1997 earnings for a sample of companies follows, with 1997 results listed first, in millions of dollars, and losses in parentheses: Texaco 2,664 vs. 2,018; Phillips 959 vs. 1,300; USX-Marathon 456 vs. 664; Union Pacific Resources 333 vs. 320.2; Burlington Resources 319 vs. 19; Coastal 301.5 vs. 402.6; Sun 284 vs. 14; Williams 271.4 vs. 362.3; Enova 251.6 vs. 230.9; Tosco 212.7 vs. 146.3; Sonat 201.3 vs. 201.2; Oryx 170 vs. 163; MCN Energy 142.3 vs. 112.6; Union Texas 136 vs. 152; Fina 126.4 vs. 153; Valero 111.8 vs. 22.5; ARCO Chemical 111 vs. 348; Enron 105 vs. 584; Mapco 101.8 vs. 97.5; Pogo Producing 37.1 vs. 32.8; Santa Fe Energy Resources (excluding Monterey Resources) 35.2 vs. (8.3); Houston Exploration 23.3 vs. 8.6; McMoRan Oil & Gas (10.5) vs. (9.9); Occidental (390) vs. 668. Reporting record earnings were Houston Exploration, MCN Energy, Texaco, UPR, Valero, and Marathon.

Oil field service and supply companies are expected to report sharply higher fourth quarter earnings, says Salomon Smith Barney.

"Positive surprises should outnumber disappointments, with expectations being met or exceeded, in most cases," said the firm.

Most of the unexpectedly high earnings will be the result of higher-than-anticipated day rates, said Salomon Smith Barney. "Disappointments will likely arise from non-recurring items such as turnkey charges, dry hole costs, and rig downtime.

"Rowan Cos. and Global Marine have already reported above-consensus earnings. Other positive surprise candidates include Ensco, Marine Drilling, Pride International, and Santa Fe International."

Prices of Oklahoma's best grade of crude oil dipped below $14/bbl last month, causing the state's largest energy group to sound an alarm.

Oklahoma Independent Petroleum Association Pres. Jim Palm said the $13.75/bbl wellhead price for Oklahoma sweet is less than operating costs for many of the state's producers. As a result, producers "are getting further and further under water and not able to hold their breath much longer," he said.

Palm praised Oklahoma lawmakers for enacting tax rules to preserve the state's oil asset base during tough times: "A lot of people scoffed at our leaders for approving tax incentives for the oil and gas industry when prices were strong in '96 and '97. But, with today's oil price crisis, I think it's fitting we acknowledge the (legislature's) efforts to prevent taxes from causing wells to be plugged."

Oklahoma's tax incentive law provides for refunds of taxes paid on "at-risk oil leases." Palm said operators of low-volume, high-cost wells should apply now for refunds of taxes paid in 1997.

Amoco Trinidad has made its largest crude oil discovery in 25 years.

Immortelle No. 9 well off Trinidad cut a combined 136 ft of pay in two zones of oil-bearing sands below 8,600 ft. The find, in Amoco's Immortelle gas field 35 miles southeast of Galeota Point, is estimated to hold 40-70 million bbl.

The well also encountered gas pay. It was completed as a gas producer in order to meet immediate customer demand for gas, flowing 38.5 MMcfd of gas and 754 b/d of condensate through a 48/64-in. choke, says Amoco.

"This discovery demonstrates the tremendous potential we have for additional oil reserves in Amoco Trinidad's gas fields," said Amoco Trinidad Pres. David Wight. "It is very likely we can develop some of this oil from the Immortelle platform as part of our 1998 horizontal oil drilling program, fast-tracking its development." The company may drill as many as eight horizontal oil wells from the Immortelle platform in 1998. And it will participate in four exploratory wells there this year, all of which have oil as the primary objective.

The U.S. EPA's ambient air quality measurements for 1996 are in. The results indicate that, while U.S. air quality continues to improve, further progress is needed, says EPA. In 1996, about 26 million Americans lived in areas that still did not meet standards for carbon monoxide, lead, nitrogen dioxide, smog, particulates, or sulfur dioxide. Although the agency has a controversial rule pending to reduce smog and particulate levels, it noted that smog concentrations decreased 6% and particulates 4% in 1996.

U.K. gas producers are pointing out to the government the irrationality of halting building of new gas-fired power stations after complaints from Britain's small coal lobby (OGJ, Jan. 12, 1998, p. 28).

Enron told a parliamentary committee last month that the government's aim of diversifying fuel supplies would be best achieved by increasing renewable energy sources, although gas is cheaper and cleaner than other fossil fuels. Enron said that even clean-coal plants produce almost 2.5 times more CO2 than natural gas for the same energy output. It contends that, to offset CO2 emissions from each 1,000 MW of coal-fired capacity built in lieu of gas-fired plants, almost 1.5 million cars would have to be removed from U.K. roads.

The European Commission has opened its checkbook to fund another tranche of energy efficiency and environmental projects.

A total of 134 energy technology projects and 75 accompanying measures will receive funding amounting to 140 million ecus ($130 million), with the intention of developing sustainable energy and protecting the environment.

Among oil and gas sector projects is a lined rock-cavern storage scheme for natural gas in Sweden, which will have capacity to store 40,000 cu m of gas. This new technology is expected to supplement salt cavern storage.

In renewables, the EC has put its money behind a plan to build a commercial wind farm off East Anglia, U.K., which it expects to show reduced cost per unit of energy compared with existing offshore wind schemes. Other projects include development of natural gas, electric, and hybrid vehicles; low-energy building designs; and more efficient electricity generation technologies.

Russia's major oil firms are making further expansion moves.

Following the recent merger announcement by Yukos and Sibneft (OGJ, Jan. 26, 1998, p. 42), Lukoil has reportedly acquired a 51% interest in Petrotel's 104,000 b/d refinery at Ploesti, Romania. Romania put up for bid controlling interests in the Petrotel and Vega refineries last year. Meanwhile, Russian Deputy Prime Minister Boris Nemtsov says that privatization of Rosneft might raise more than $2 billion. Russia has decided to allow an unnamed independent firm to set the floor for bids. To raise top dollar for the firm, the sale will have to be conducted openly and cleanly, cautioned Nemtsov. Yukos/Sibneft, Lukoil/ Gazprom, and BP/Oneximbank are all expected to vie for control of Rosneft.

Copyright 1997 Oil & Gas Journal. All Rights Reserved.