OGJ Newsletter

• U.S. Industry Scoreboard 8/10 [44,237 bytes]

U.N. weapons inspectors, in Baghdad to catalog Iraq's weapons of mass destruction, have refused to submit a report saying that Iraq's disarmament is complete. Chief inspector Richard Butler reportedly walked out of talks there, saying President Saddam Hussein's government had refused to accept further inspections of suspected biological and chemical weapons sites.

The situation mirrors a clash between Washington and Baghdad in March, after which U.N. Sec. Gen. Kofi Annan intervened to prevent military action (OGJ, Mar. 2, 1998, p. 51). Then, oil markets greeted the peace deal by slashing 45¢/bbl from dated Brent crude to bring it to $13.48/bbl. At close of trading Aug. 4, dated Brent stood at $11.96/bbl, little changed over several days.

Now oil producers will yet again be hoping for a halt to the latest rolled-over U.N./Iraq oil-for-aid deal to offer a little respite from low prices.

Kuwaiti Oil Minister Sheikh Saud Nasser Al-Sabah says a third round of production cuts will be necessary if Brent fails to reach $17/bbl by November. He told reporters that he would campaign to cut output if prices don't improve with the start of the winter heating season in the northern hemisphere.

"We are monitoring the market, and, if prices do not improve, we will reconsider the quotas of OPEC agreed recently," said Al-Sabah.

Kuwait wants to increase cooperation with western oil firms to boost its production to 3 million b/d by 2005 from 2 million b/d. But western companies appeared unfazed by a Kuwait Petroleum Corp. announcement that it would not sign production-sharing agreements for this purpose.

Kuwait Oil Minister Al-Sabah told parliament last week that production sharing with western firms was not an option. He said such arrangements would violate Kuwait's constitution. A subsequent report by the French press agency quoted an unnamed senior executive from a foreign oil firm as saying that his firm was willing to work in any framework Kuwait wants, as long as it offers acceptable returns. Al-Sabah prefers the signing of technical assistance contracts to develop fields using advanced technologies. Three such contracts have been signed, with Total, BP, and Chevron.

Iran's first crude oil exchange with Turkmenistan has begun, with a cargo of oil from Dragon Oil being delivered to Neka, Iran, on the Caspian Sea.

Dragon is swapping 7,500 b/d of oil-all its Caspian Sea output-in return for an equivalent volume of Iranian light oil, to be collected from the Persian Gulf.

A second Iran-Turkmenistan exchange deal, with Monument, is thought to be imminent. Monument's U.S. partner, Mobil, has reportedly asked for its swap deal to be exempt from U.S. sanctions against Iran.

Iran is tendering for construction of a 392-km pipeline from Tehran to Neka to allow swaps of as much as 370,000 b/d of oil with central Asia by 2001.

Russian oil firms are fed up with declining production and revenues and are asking the government for help.

The heads of Russia's leading oil and gas firms have openly voiced their concerns about the effects on Russia's oil industry of the current economic crisis.

In a joint press conference, the leaders of Lukoil, Yukos, Sibneft, Yumen Oil, Sidanko, Surgutneftegas, Eastern Oil Co., and Gazprom appealed to President Boris Yeltsin to change the country's oil and gas tax policy.

Oil production was 301 million metric tons in 1996 vs. 542 million tons in 1985. And 1998 losses in Russia's oil sector have reached 34 billion rubles, said Lukoil: "If oil prices continue to decrease, the loss will rise to 58 billion rubles. The oil industry will fail to withstand further decline of oil prices."

According to Lukoil, "A fixed excise rate on crude oil does not ensure objectivity of taxation. Russian oil exports are becoming unprofitable." The firms are encouraging the government to implement tax reforms in the oil sector and reconsider amending a federal law on excise taxes. Yeltsin's veto of the amendment was "virtually unanimously approved by the parliament," said Lukoil.

Hoping to revive foreign investment in its sagging economy, Malaysia may revise its policy granting state oil firm Petronas a monopoly.

Malaysia's National Economic Action Council is recommending a review of the Petroleum Development Act of 1974, which gives Petronas all rights to manage the country's hydrocarbon resources. Malaysian Special Function Minister Daim Zainuddin said the review is aimed at allowing local companies to participate in petroleum E&D and production.

Shell unit Shell Nigeria Gas is urging Nigeria to select natural gas as its fuel of choice in shaping a national energy policy.

Shell Nigeria Gas Chairman Egbert Imomoh said Nigeria also needs to separate the business of downstream gas distribution from that of upstream gas production and gathering to ensure better focus and accountability.

BG is once again in the sights of U.K. gas industry regulator Office of Gas Supply (Ofgas), which now wants to carve up the former state monopoly's gas storage assets. Ofgas says BG Storage retains a monopoly on gas storage. It also envisions several measures, including auction of the Rough and Hornsea storage facilities and separation of BG's transportation and storage businesses.

BG agrees that the current setup is inappropriate for the U.K.'s liberalized gas industry but insists a "...transition from regulated monopoly to competitive activity needs to be carefully planned and orderly."

The U.S. Senate confirmed U.N. Ambassador Bill Richardson for the post of Energy Secretary after the White House pledged he would be given authority to negotiate nuclear waste issues for the government. Richardson will assume the post in mid-August, replacing Federico Pe?a, who resigned June 30.

Several senators had pledged to block the nomination unless President Clinton gave him authority to proceed on construction of a federal repository for nuclear wastes, which are now stored at reactors across the country.

The U.S. Interior Department at presstime last week was expected to unveil a plan to revive leasing in the National Petroleum Reserve-Alaska.

Set aside for the U.S. Navy in 1923, the NPR-A saw exploratory drilling in the 1940s and 1980s, with only a handful of discoveries, none significant.

What has revived interest in the region is an ARCO group's discovery of giant Alpine oil field on the Colville River delta adjoining the eastern coastal boundary of NPR-A. That is the area where oil industry interest is certain to be greatest and that environmental lobbyists insist is the most ecologically sensitive, setting the stage for a leasing plan neither group will be happy with.

Key Energy has launched a "hostile" $14/share cash tender offer for Dawson Production Services. The offer, including $149 million in Dawson debt, is valued at $310 million.

Key claims that Dawson misled its shareholders by saying it was still considering a $16/share offer by Key, after it had been rejected. Meanwhile, Dawson called a Key press release "misleading," saying it "distort(ed) Dawson's position on Key'sellipseproposal." Dawson said, "Key's $16/share proposal was not compelling," and that it "would entertain discussions at a higher price."

Key says Dawson's second quarter results were "significantly less than last year and substantially below street estimates," a factor in its move to launch the takeover bid.

Coastal's Aruba refining subsidiary has joined the ranks of refiners securing long-term agreements with state oil firms for supply of heavy oil.

Coastal Aruba Refining signed a 5-year supply contract with Pemex marketing subsidiary PMI to support an upgrade of its 205,000 b/d San Nicolas refinery. PMI will provide as much as 100,000 b/d of Maya crude. Coastal will install a 30,000 b/d delayed coker-in addition to its existing 31,000 b/d delayed coker-and make other modifications to increase its conversion capability. Total crude capacity will increase to 280,000 b/d.

Coastal will retain 100% ownership of the refinery and fund the project. The supply deal kicks in with start-up of the new coker in first half 2000.

U.S. energy firms persist in buying assets in Latin America's energy sector.

Houston Industries and Venezuelan partner Corp. EDC have agreed to acquire a 65% stake in Colombia's Corelca electric power distribution systems for $550 million.

The two systems, Electrocaribe and Electrocosta, were auctioned by the Colombian government. They serve 1.2 million customers in Colombia's Atlantic coastal area, including the cities of Santa Marta, Barranquilla, and Cartagena. Including HI's acquisition of the electric utility in Colombia's Valle del Cauca province, the firm will now supply electric power to about 25% of the country's population.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.