OGJ Newsletter

Aug. 23, 1999
Multinational companies emerging from a downturn are getting more selective about where to invest their E&D capital, and offshore is not the automatic green light it once seemed to be.

Multinational companies emerging from a downturn are getting more selective about where to invest their E&D capital, and offshore is not the automatic green light it once seemed to be.

Offshore licensing rounds in Peru and India both stumbled last week, in part because of low industry interest.

Perupetro has postponed its offshore bid round until after it winds up the Camisea natural gas project tender. While a government official claimed the move was intended to give priority to the Camisea megaproject-which has undergone yet another deadline extension (see story, p. 34)-industry officials in Peru told OGJ that the timing of the license round was poor, especially after Repsol recently disclosed two dry holes on its offshore Block Z-29.

Perupetro had earlier announced that it would sell bid documents for the blocks during Aug. 16-Dec. 10, with bids to be presented Jan. 31, 2000, and results unveiled Mar. 3. The new bid dates will be announced after the Camisea tender is closed. Perupetro had advertised the offshore license round widely in trade magazines and during roadshows earlier this year in Calgary and Houston.

The lukewarm interest in India's long-promoted bid round under its New Exploration Licensing Policy (NELP) wasn't for lack of effort on India's part, either. The round got under way 2 years ago. Only 45 bids were received for 27 of the 48 mostly offshore blocks on offer. Indian downstream giant Reliance Industries was the most aggressive private-sector bidder under the NELP round, which closed Aug. 18. Reliance, in a combine with Canada's Nyco Resources, won 14 blocks, a number surpassed only by state-owned ONGC's 15. No multinational oil majors participated in the round, which attracted only 11 domestic firms-five of which are state-owned-and 10 foreign firms.

Multinationals seem to be focusing their E&D money more on Central Asia and the Middle East. Shell Exploration BV has signed a strategic alliance accord with Turkmenistan covering E&D in that country that is expected to lead to a consortium with state firms Turkmengaz and Turkmenneft. The group will negotiate production-sharing contracts with the government for license areas in western, central, and eastern Turkmenistan. Shell also signed a letter of intent with pipeline developer PSG International to develop the proposed 16 billion cu m capacity gas pipeline from Turkmenistan to Turkey to market any gas it finds under the PSCs. Shell and the state firms also will work to expand gas deliveries through existing pipelines in Russia and northern Iran.

Undaunted by U.S. threats to impose sanctions against non-U.S. firms that invest in Iran (OGJ, Apr. 5, 1999, p. 29), Royal Dutch/Shell is viewed as the favorite to land a prize oil field project in that country worth a reported $850 million, Reuters reports. Shell is expected to go ahead with the Soroush-Nowruz development project and will most likely seek a sanctions waiver from the U.S., along the lines of the one granted Total in a development deal involving Sirri A and E oil fields off Iran. Tehran is aggressively courting foreign investment in both its upstream and downstream sectors (see related story, p. 27).

Kuwait Petroleum Corp. has identified seven oil fields with a combined 16 billion bbl of oil reserves that it plans to offer for further development under service-fee contracts to multinational oil firms. The targeted fields currently produce a combined 590,000 b/d, a level Kuwait wants to hike to 1.3 million b/d by 2005. KPC hopes to sign the first agreement by yearend. In the past, Kuwait has limited foreign participation in its upstream to technical assistance contracts, including accords with Total, BP, and Chevron.

Is there an end in sight to Nigeria's woes? Civil strife has disrupted oil operations again in the Niger River delta area, when a Chevron-Texaco joint venture had to declare force majeure after angry locals blocked supplies from reaching the JV's offshore platforms. The JV evacuated all employees from the platforms, which had been producing about 50,000 b/d of oil. This follows an earlier incident in which protesters commandeered a helicopter working for the JV and kidnapped its crew and passengers, later releasing them. A Texaco official says production won't resume until conditions are safe again.

Nigeria says it has lost about $1 billion to disruption of oil production operations in the Niger Delta this year.

Two state-owned petroleum firms are poised for reorganizations that will partially privatize their operations.

The move to revoke the monopoly of Indonesian state firm Pertamina should become law by month's end, according to Mines and Energy Minister Kuntoro Mangkusubroto (see Editorial, p. 25). The bill would make Pertamina a limited liability company, responsible only for exploration and production (OGJ, Aug. 9, 1999, Newsletter). The House has agreed to a 2-year transition period, during which most of Pertamina's responsibilities will be transferred to ministries. The House also agrees there is no need to form a new state firm to handle concession awards, says Kuntoro. This possibility had arisen out of concern that the new structure left the government open to breach-of-contract suits, but Mines and Energy assured the House it would set transparent procedures for awarding oil and gas concessions. It will even allow the restructured Pertamina to vie for awards, says ministry Sec.-Gen. Djoko Darmono.

The board of Norwegian state firm Statoil has proposed to Minister of Petroleum and Energy Anne Enger Lahnstein that its assets be combined with those of the State Direct Financial Interest (SDFI) to form a 500 billion kroner ($64 billion) company that would then be privatized. Statoil questions its arrangement with SDFI, which requires Statoil to manage three times its own Norwegian assets without seeing equivalent financial benefit. Enger Lahnstein reportedly said that the government is open to such alternative proposals, but that a broad political consensus is needed. A Statoil official told OGJ the proposal would be debated in parliament this fall and winter: "It's a long-term thing." The official said that the politicians aim to be ready to make a decision on the Statoil plan in the summer of 2000. Meanwhile, Statoil announced that Chief Executive Harald Norvik, who handed in his notice earlier this year following massive cost overruns in Statoil's Åsgard field development, will be replaced by Olav Fjell, a former director of Norway's Postal Savings Bank. Fjell has already started working for Statoil, but the official hand-over will take place on Sept. 24.

Mexico President Ernesto Zedillo has eliminated the country's 4% import duty on natural gas. The tariff was originally to be eliminated in July, but the anti-dumping suit brought against Mexico by a group of U.S. oil producers led the Mexican government to hold off (OGJ, July 26, 1999, Newsletter).

In a subtle jab at the group who brought the anti-dumping suit, the press release announcing the tariff elimination stated, "This action is a demonstration of the commitment of the Mexican government to encourage open commerce and the integration of our economy with the rest of the world."

Last week's massive earthquake in Turkey caused an enormous fire at the country's largest refinery at Izmit, near the quake's epicenter. At presstime, the refinery blaze, which was seen as threatening the city of Izmit, had been brought under control. Damage by the earthquake to power and water facilities had hindered the fire-fighting process. As a result of the quake, a broken products pipeline leaked gasoline into the Sea of Marmara, creating a spill that covered 750,000 sq m, according to a Reuters report. Damage to the 226,440 b/d refinery, though clearly severe, has not yet been assessed. The quake is likely to have damaged other oil and gas installations, creating additional complications for a country already ravaged by the disaster.

Yukon Pacific Corp. has withdrawn from the project group planning a massive Alaskan gas pipeline and LNG export project (OGJ, Sept. 29, 1997, p. 50) and has taken up with a public-private partnership making alternative plans. The new scheme calls for formation of a port authority by three municipalities surrounding the LNG export site. The use of a public authority exempts the project from federal income tax, thus saving a reported $3 billion. A formal ruling on the tax exemption is awaited.

At 9-10 million metric tons/year, the alternative LNG export project is smaller than the one planned by the ARCO-led group, which is a 14 million ton/year project. The new plan has received 13 key permits, according to YPC Pres. & CEO Jeff Lowenfels. These include: rights-of-way from the state and federal governments, federal approval to export gas, an export license from DOE, site approval for shipping from FERC, and a local air permit. Lowenfels said, "We had to convince the market that this project was 'permittable,' and we did it." The group also had to convince the financial community, he said. "Now we can move rapidly with the rest of project," said Lowenfels, who expects the project to take shape "sooner rather than later."

"This project will be up and running before 2010 and probably closer to 2005-06," he said. He expects costs to total $10-12 billion, depending on the Internal Revenue Service's ruling on the federal income tax issue. The group has been working closely with Bechtel and Williams on plans for the buried, chilled pipeline, which will essentially parallel the Trans-Alaska Pipeline. Citizens of the three port authority members will vote on formation of the joint body on Oct. 5.