OGJ Newsletter

• U. S. Industry Scoreboard 9/21 [44,067 bytes]

Middle East Economic Survey reports that total OPEC output averaged 27.02 million b/d in August, a drop of 465,000 b/d from July's average, which in turn was 772,000 b/d below the June average. MEES said the main reductions came from Iran, which produced 197,000 b/d less than in July, and Nigeria, which produced 190,000 b/d less. Iran's reduction was seen as welcome evidence of commitment to pledged cuts, but Nigeria's was attributed to supply disruptions caused by civil unrest and pipeline problems.

"OPEC circles will no doubt take heart from this further improvement in the cutback performance of member states," said MEES. "Compliance with the 2.6 million b/d total of production cutbacks pledged by 10 OPEC countries reached a very healthy average of around 92% in Augustellipse(vs.)ellipse69% in July."

Despite this bit of good news, there are more signs of fallout from continuing low oil prices. Saga Petroleum has taken a writedown against operating income for the 8-month period to Aug. 31, 1998, of 2.5 billion kroner ($335 million). Saga said the writedown is mainly because low oil prices devalued its interest in KP North Sea Holding-formerly the U.K. upstream operation of Kuwait's Santa Fe International Holdings-which the Norwegian independent acquired in 1996. Saga CEO Diderik Schnitier says the acquisition from Santa Fe was a disappointment and that the price paid was too high.

State-owned Petroleum Authority of Thailand (PTT) has slashed its planned investments for 1999-2003 a further 18 billion baht ($440 million), following cuts of 30 billion baht announced earlier this year. The move is a result of a revised outlook for Thailand's economy, which is now expected to shrink 5%/year for the period, rather than grow 1-2%, as originally thought.

PTT Gov. Pala Sookawesh said 85.65 billion baht, or 70% of PTT's revised 5-year budget, would go towards its natural gas business (mostly transmission projects), followed by 13.55 billion baht for oil, 10.63 billion baht for petrochemicals, 8.89 billion baht for refining, and 3.09 billion baht for overhead.

Further petroleum industry deals have validated the purported transition to a buyer's market (OGJ, Sept. 14, 1998, Newsletter).

Alberta Energy Co. (AEC) has made an unsolicited takeover bid for Amber Energy, offering $7/share (Canadian) plus assumption of $304 million in debt. Amber called the $450 million all-cash bid "completely inadequate," even though it represented a 54% premium over Amber's closing stock price the day before it was made. Amber's share price rebounded $2.50 to $7.05/share following news of the takeover attempt, eradicating the supposed premium.

Amber's share price had fallen after it slashed $100 million from its $250 million 1999 capital budget and said it would defer most of its fourth-quarter heavy oil drilling programs in Pelican Lake and Springburn fields.

Amber is seeking financial advice in hopes of thwarting the bid.

In other merger and acquisition (M&A) news, MSR Exploration has agreed to merge into Quicksilver Resources through an exchange of common shares involving one Quicksilver share for every 10 MSR shares. Quicksilver is owned 74% by Mercury Exploration and 13% each by Trust Co. of the West and Enron. Because Mercury already holds a substantial interest in MSR, it will own 67% of the merged company, which will have combined assets of $148 million.

It's not just commercial petroleum companies involved in the current M&A frenzy. Now a state firm has gone bargain-hunting for a private company.

Malaysia's Petronas made a bid to acquire all the shares of Engen Ltd., of which Petronas already owns 30%. The bid values the South African integrated company at 4.13 billion rand ($670 million).

Engen directors advised shareholders: "The offer does not reflect the fundamental value of Engen over the longer term. However, (it) represents a premium of 57.8% on the mid-market closing price of an Engen share on Aug. 25 and a premium of 24.8% on the average closing priceellipseover the last 6 months."

Given existing market circumstances, said the directors, Petronas should put the offer to shareholders, who should "...give the offer serious consideration, as the independent directors themselves intend to do."

In the energy marketing arena, the energy services division of engineering firm Stone & Webster (S&W) has formed a 50-50 venture with Sonat Marketing, the midstream arm of Sonat Inc. Stone & Webster Sonat Energy Resources will provide energy management services to large North American industrial, commercial, and governmental customers. S&W Chairman H. Kerner Smith said, "This new company will provide additional value to our (engineering) customersellipseby offering fuel supply and energy trading services previously outside our realm." The new firm's president, William J. McMahon, said the JV would "go after the energy market in a more aggressive way."

The key energy vote of the current U.S. Congress has been stymied by unrelated politicking. An amendment to a Senate appropriations bill, approved this summer, blocked a controversial MMS oil royalty valuation rule from taking effect Oct. 1.

At presstime last week, the appropriations bill was pulled from the Senate floor because Democrats were trying to add health care amendments. The Senate had debated Sept. 16 whether to approve an amendment by Sen. Barbara Boxer (D-Calif.) that would remove the ban on the royalty rule in the fiscal 1999 appropriations bill (see story, p. 42). There was no vote on the Boxer amendment, but an oil lobbyist told OGJ that industry had the votes to kill it.

The House Appropriations Committee has voted to lift a ban on U.S. financial aid to Azerbaijan. The Senate will consider the measure. Congress imposed the ban in 1992 in response to Azerbaijan's blockade of Armenia.

U.S. Sec. of State Madeleine Albright advised the committee that the ban hindered U.S. diplomacy in the region and efforts to help U.S. oil companies pursue investment opportunities in Azerbaijan.

Phillips has made its first venture into the Caspian Sea, taking a 7.14% stake in 10 exploration blocks in the Kazakh sector. Other participants in the group are Kazakhoil, Shell, Mobil, BP, Statoil, Agip, Total, and BG (OGJ, Jan. 26, 1998, Newsletter). Work commitments include drilling six exploration wells and conducting a seismic survey within 6 years. The first well will be spudded in the fourth quarter. Phillips also agreed with the Kazakh government to undertake solely a study of development, gathering, and processing of natural gas and extraction, fractionation, transportation, and marketing of NGL.

Phased liberalization of South Korea's power market is creating opportunities for outside investment in independent power producer (IPP) and LNG import projects.

In search of private funding for IPP projects, a South Korean delegation presented details of planned power plants at last week's World Energy Council congress (see related story, p. 39).

Among the power projects seeking funding is a 500-MW LNG-fired plant planned by Hyundai Energy at Yulchon. Despite his appeal for funding for the plant, the firm's vice-president, Young-Jik Kim, divulged a problem with Hyundai's power purchase agreement (PPA) with Kepco for the project: "There are many problems in our PPA. In other words, it's not bankable."

Other planned gas-fired projects include LG Energy's 500-MW plant at Bugok and Taegu Energy's 900-MW plant at Taegu.

The race to boost Australian LNG export capacity is in full swing.

Development costs of the West Australian Petroleum (Wapet)-led Gorgon gas project have been shaved by about $1 billion (Australian) in the last 6 months. Wapet has cut the original upstream cost estimates and taken 20% off LNG production costs. Marketing efforts for the project have focused on South Korea, India, Taiwan, and China. Project plans call for two 4.3 million metric ton/year LNG trains fed by gas produced from five gas fields in the Gorgon area, about 200 km off Western Australian. Wapet also plans a $300 million, 3-year, seven-well exploration program west of Gorgon beginning in March 1999.

More than $500 million has been spent on the Gorgon area to prove up enough gas to support an LNG export project. Its chief competition is expansion of the existing North West Shelf LNG venture, for which initial engineering contracts were awarded recently (see related story, p. 44).

Amerada Hess and Oryx Energy have begun producing from Baldpate field in the Gulf of Mexico flex trend (OGJ, May 11, 1998, p. 49). Output will rise from the current 2,000 b/d of oil and 8 MMcfd of gas to a peak of about 75,000 boed by spring, when the last of seven predrilled wells comes on line, said Oryx.

The field, on Garden Banks 260, will rapidly become Oryx's largest single producer. Nearby Penn State Shallow reservoir, being developed as a subsea tie-back to Baldpate, is expected to begin producing by yearend.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.