OGJ Newsletter

• U.S. industry Scoreboard 10/26 [44,061 bytes]

A group of oil executives was expected to meet with advisers of President Clinton late last week to hear a pitch for the administration's preferred route-from Baku to the Turkish Mediterranean port of Ceyhan.

The proposed pipeline has so far failed to win concrete backing from western oil firms, which are seeking an alternative, less expensive route (see story, p. 29). A path from Baku through Supsa, Georgia, and then across the Black Sea and Bosporus Strait is thought more likely.

Representatives of Amoco, Chevron, Exxon, Mobil, Pennzoil, Texaco, and Unocal, among others, were reportedly invited to the meeting.

The Caspian Pipeline Consortium (CPC) has reportedly received a feasibility study on its planned pipeline from Tengiz oil field in western Kazakhstan to the Russian Black Sea port of Novorossiisk. The original cost estimate for the pipeline of $1.5 billion has more than doubled, to $3.8 billion.

Chevron Chairman Kenneth Derr told a meeting of the Asia Society in New York last week that he expects CPC to begin laying the 1.34 million b/d pipeline by yearend. Completion is expected in 2001. When asked about the White House meeting, Derr said his firm would not attend.

Turkmenistan and Turkey have signed a letter of intent to lay a gas pipeline to link the two nations-the route as yet undetermined. Turkey wants to buy 525 bcf/year of Turkmen gas and to help move additional gas to Europe.

Argentina's YPF, the first company to sign an E&P venture in Brazil with Petrobras (see related story, p. 40), considers Brazil to be its priority market, upstream and downstream.

Joao Carlos Franca de Luca, president of YPF Brasil and a former Petrobras E&P director, told OGJ that YPF will invest $1.5 billion in Brazil during the next 5 years. YPF was scheduled to inaugurate its first service station in Brazil, in Rio de Janeiro, on Oct. 21. Petrobras is to set up its first service station in Argentina on Nov. 5. YPF's target is to gain a 10% share of Brazil's refined products market in the next 5-7 years, said de Luca.

Meantime, Brazil's state petroleum agency ANP has authorized YPF to import 190,000 bbl of crude oil to be processed at the Manguinhos refinery, at Rio de Janeiro, in which YPF has a 50% stake. At present, this refinery has a capacity of 10,000 b/d; YPF intends to increase that to 31,900 b/d by 2001.

The merger craze among U.S. firms shows no signs of abatement.

Following the announced union of Kerr-McGee and Oryx (see story, p. 38), several service and supply firms have added their names to the growing list of companies involved in mergers, acquisitions, and alliances.

Nabors Industries agreed to acquire Bayard Drilling in a deal valued at $220 million. The deal will be accounted for as a purchase.

Bayard owns 87 rigs, 73 of which are actively marketed at this time.

"A large proportion of Bayard's fleet are deeper, premium rigs, including a significant number of SCR rigs," said Nabors Chairman Gene Isenberg. Nabors markets over 400 land rigs, 25 platform rigs, 6 jack ups, and 2 barge rigs.

Schlumberger and Smith International agreed to form a drilling fluids joint venture. Smith will contribute its M-I fluids businesses and Schlumberger its fluids business. Schlumberger also will pay Smith $280 million in cash.

The JV will be owned 60% by Smith and 40% by Schlumberger.

Further downstream, engineering, supply, and service giant ABB has agreed to acquire Elsag Bailey Process Automation in a deal valued at $1.5 billion. ABB will make a cash tender offer for all outstanding Elsag Bailey shares at $39.30/share. Finmeccanica, which holds 53% of the outstanding shares, has agreed to tender all of its holdings to ABB.

And then there is a noteworthy "de-merger" exception: DuPont's phased spinoff of Conoco, which started with a bang last week with an IPO expected to be the biggest in history at $4.2 billion. DuPont last week said the IPO of more than 191 million shares of Conoco Class A common stock was priced at $23/share, far above expectations. Following the IPO, DuPont will offer the remaining Conoco shares to its stockholders in a tax-free split-off, to be completed within 12 months (OGJ, Oct. 5, 1998, Newsletter).

Lower oil prices have sent U.S. well completions plunging.

API reports that U.S. completions fell 18% in the third quarter from a year ago. Footage drilled was down 12% at 36.2 million ft. Gas completions fell 10% to 2,841, oil completions 25% to 2,361, and dry holes 17% to 1,326. Exploratory well completions declined 20%, and development completions fell 17%.

Anadarko has another subsalt discovery in the Gulf of Mexico.

The Hickory discovery well, drilled in 320 ft of water on Grand Isle Block 116, cut about 300 ft of hydrocarbon pay in multiple sands. The well penetrated a salt section about 8,000 ft thick and was drilled to 21,600 ft TD. Anadarko is running a 73/4-in. production liner to TD. It is moving the Global Baltic I jack up to begin drilling a delineation well immediately from the same surface location. It aims to develop the find and explore for other pay horizons. First production is expected in 2000. Interests in Grand Isle Blocks 110, 111, and 116, which hold Hickory, are operator Anadarko 50%, Shell 37.5%, and Ocean Energy 12.5%.

As expected, the budget agreement between Congress and the Clinton administration contains a provision delaying MMS's controversial royalty rule for 8 months (OGJ, Oct. 19, 1998, p. 37).

Oil state congressional representatives want MMS to reconsider the effects of the rule, which the agency had planned to issue Oct. 1.

Statoil reports that 12 Norwegian offshore license groups are in the running to secure gas sales contracts from the Gas Supply Committee, which the state firm heads up. Six operators say they can commit to deliver gas to continental Europe by yearend 1999 (see related story, p. 36), while six more have available production capacity that can be brought on stream later.

Among field developments touted under the latest round of applications for gas contracts, which closed on Oct. 1, are Statoil's Kvitebjorn discovery and Norsk Hydro's Tune. the committee plans to submit its recommendations for which fields should be developed for the Ministry of Petroleum and Energy on Jan. 15.

The ministry is expected to announce its decisions before July.

Look for the environmental flavor of european Union energy legislation to strengthen following the european Commission's adoption of a new proposal.

The proposal cites three focus areas that need to be target both by the Eu and member states: promoting energy efficiency and conservation, increasing the share of renewable fuels used for electricity generation, and reducing the environmental effects of conventional energy sources.

Energy Commissioner Christos Papoutsis said, "The council and the European parliament should now establish a clear strategy for environmental interegation in energy policy, identify priorities for action, and allocate the necessary budgetary resources to enable the effective implementation of the measures selected."

Russian oil producers are ailing as a result of regional economic woes and an increasingly onerous tax burden.

Yukos Pres. Mikhail Khodorkovsky says russian producers are now paying only about 66% of their taxes. He says he doesn't see how producers can pay any more, even if the governement hikes taxes, as expected. Khodorkovsky says all producers hard currency revenues are now going toward paying taxes.

The chairman of the state tax service's arrears department, Vladimir Popov, shares the opinion that the oil firms' tax burden is to heavy. Popov believes a tax cut would stimulate production and increase tax revenues.

Finance Minister Mikhail Zadornov and Fuel and Energy Minister Sergei Generalov, who shares Popov's concerns about oil producers, were expected to address the duma last week on behalf of Russia's languishing oil industry.

Meanwhile, Lukoil Chairman Vagit Alekperov predicts that Russia's leading oil companies will be forced to consolidate in order to weather the current economic crisis and compete on international markets. He called for the creation of two or three "truly international" oil companies.

And Gazprom Chairman Rem Vyakhirev believes that a 5% block of shares in his company may be sold within 2 months so that the government can raise needed revenue. He added that a deal on writing off Gazprom's tax dept is near completion. Vyakhirev also said that Gazprom had to cut its capital budget by two-thirds because of lower fuel prices and Russia's economic crisis.

Royal Dutch/Shell and Italy's ENI are reportedly eyeing the Gazprom stake. While proceeding with this sale would seemingly fly in the face of lackluster interest shown in the recently canceled Rosneft offereing, Gazprom is seen as the most attrative investment in Russia (see related story), largely because it doesn't have the sensitivity to oil prices that Russia's oil giants do.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.