OGJ Newsletter

• U.S. Industry Scoreboard 3/18 [72436 bytes]

Will a bullish outlook for gas prices this year spur North American gas drilling?

The need to refill severely depleted inventories of gas in storage will help keep a prop under demand this year, keeping prices at their highest level in more than 2 years. AGA estimates U.S. working gas in storage the week ended Mar. 8 at 35% below a year ago, with storage at 27% of capacity vs. 41% in 1995. NatWest Securities predicts U.S. gas prices will average $1.80/Mcf this year, up 5% from 1994 and 22% from 1995. Even with the recent fall of more than $1/Mcf late last month owing to a late winter warm spell, spot gas prices are almost 80% higher than a year ago.

About 60% of the Baker Hughes count of active U.S. rigs is now gas directed, and the growing prospect of firm gas prices and softening oil prices this year means the focus on gas drilling will grow more lopsided.

The tally for the week ended Mar. 8 is up 26 units from the first week of February, with gas drilling providing a gain of 32 and more than offsetting a drop of five in the oil rig count. The rig count for that week also was up 12 from the previous week and up 7% from a year ago.

In Canada, a surge in gas prices has led Simcoe, Ont., independent Metalore Resources Ltd. to drill another four wells on its 35,000 acre leasehold in Southwest Ontario this spring. For March gas deliveries, the price Metalore will receive jumped to $4.68 (U.S.)/Mcf from $3.66/Mcf for February deliveries-a 300% jump in its gas price from the second half 1995 average.

Metalore Pres. George Chilian said, "Natural gas storage reservoirs throughout North America have been seriously depleted-in some cases damaged-and because it will require 7 months to replenish most of these storage facilities, gas prices are scheduled to remain relatively high throughout all of 1996 and into 1997."

The U.S. gas industry is staying the course toward establishing a more user friendly, customer responsive, seamless gas production, transportation, and distribution system. Members of the Gas Industry Standards Board executive committee, meeting in Washington, D.C., this month, approved 140 business practice standards to support electronic exchange of gas marketing data. Another 86 items were omitted as duplicative or deferred, and 28 more were rejected. The committee's decisions form GISB's response to FERC's rulemaking on gas industry standardized electronic communications and business practices.

Rocky Mountain gas producers may get a new venue for selling their gas to markets in the U.S. East.

Wyoming Interstate Co. (WIC), Williams Natural Gas, and Trailblazer Pipeline are studying a link between Trailblazer and WNG's system in East Kansas. The connection would serve eastern U.S. markets via WNG's interconnects with ANR, Panhandle, and other long lines. WIC is the central part of an 800 mile system from Southwest Wyoming to Central Nebraska, Trailblazer the eastern leg of the system. WIC general partner CIG Gas Supply says WIC's plans to expand capacity out of the Rockies on the strength of its recent open season, coupled with a strong open season WNG saw on its line from Rawlins, Wyo., to Hesston, Kan., would justify the link to provide more eastern access to Rockies gas. Talks are in early stages, and no details are forthcoming yet.

Offshore frontiers continue to hold industry in thrall.

Five companies have applied to Denmark's Raw Materials Administration for exploration licenses in the Fylla area off western Greenland, says applicant Statoil. The Norwegian state firm contends Fylla offers some of the greatest challenges in northern waters, including drift ice and waters as deep as 1,500 m.

The other four applicants are Total, Elf, Phillips, and Denmark's Danop. Awards are to be made jointly by Danish and Greenland authorities this summer.

Statoil notes seismic surveys of Fylla have revealed large geological structures, adding, "It is widely held in the industry that any hydrocarbons will be gas, but oil finds are not ruled out."

Almost 400 oil and gas prospects have been identified off northern Russia, and while most have not been drilled, it is evident major hydrocarbon resources are there. This is the view of Smith Rea Energy Analysts, Canterbury, U.K., which contends a harsh environment and high costs mean developments will have to await large scale western involvement.

"Compared with the Azeri Caspian Sea, little interest has so far been shown by western oil majors in Russia's largely arctic offshore shelf," said Smith Rea, "though there is activity off Sakhalin Island and to a lesser extent in the Barents Sea. The reasons for this relative neglect lie largely in the difficult ocean environment, although continuing political and administrative uncertainties play a part. But by 2010 major production could occur."

Shell's new Nigerian unit could have a major deepwater oil strike.

Shell Nigeria Exploration & Production Co. (Snepco) 1 Bongo wildcat found oil on deepwater License 212 off Nigeria. Speculation is rife of a big discovery, but Shell says only that it is testing the well and it will take several months to gauge size of the find and whether it is commercial. The well was drilled in

1,015 m of water and was planned to 4,525 m TD. The license is operated under a production sharing agreement with Nigerian National Petroleum Corp., with the state share pending field development. Interests are operator Snepco 55%, Exxon 20%, and Agip and Elf 12.5% each.

Shell went to extra lengths to point out 1 Bongo is the first well drilled by Snepco, a new Shell unit separate from Shell Petroleum Development Co. of Nigeria (SPDC). This points to a ticklish situation for Shell. SPDC operates the company's Nigerian onshore fields and has come under fire worldwide for its relations with Nigeria's military regime, which last year executed nine local activists opposing Shell operations in their homeland. While the deepwater strike could rekindle international criticism of Shell's role in Nigeria, Shell has been unable to replace its Nigerian production in recent years and has focused on the deepwater tracts, seen as vital to the future of Nigerian oil.

The Clinton administration is exploring ways to use sanctions to persuade Nigeria's military leadership to accept democratic reforms.

An oil embargo isn't on the table, but the U.S. wants allies to ban new investments in Nigeria and freeze assets Nigerian leaders have in their countries.

EPA's relations with industry take a step back and one forward.

EPA and Ethyl are at it again over the company's manganese based gasoline additive MMT. EPA tried to block use of the additive for years but finally yielded to adverse court suits. Environmental groups recently began an attack on MMT (OGJ, Feb. 26, p. 42), prompting Ethyl to run ads stating EPA had no data showing MMT is a health threat at low levels of exposure.

Administrator Carol Browner said EPA does not have data proving MMT is not a threat, either, adding, "The American public should not be used as a laboratory to test the safety of MMT."

Ethyl replied that EPA still is trying to hold Ethyl to a standard the courts have rejected and should not be supporting a campaign by environmental groups.

EPA soon will disclose a partnership with state governments and the oil industry to improve cleanup of petroleum from leaking underground storage tanks. EPA, Amoco, BP, Chevron, Exxon, Mobil, and Shell will create a partnership to target tanks that pose the greatest health and environment risks.

Exxon has agreed with two Japanese steelmakers to commercialize technology it is developing and patenting to produce weldable steels significantly stronger than those used in petroleum industry applications today.

The focus will be on efforts to cut costs of pipelines, oil and gas processing facilities, and offshore platforms. Nippon Steel and Sumitomo Metal will combine their advanced metallurgy and manufacturing technology with Exxon's proprietary technology to develop, test, and produce advanced high strength steels.

This will accelerate commercial availability of the new steels to within 4 years. Exxon concurrently is developing pipeline designs and welding methods to take advantage of the new steels.

BP plans to jump capital spending by $1 billion/year in order to hike profits 50% to $4.5 billion by 2000. CEO John Browne told analysts in London last week the aim is to boost profits via increased capital outlays in the period to $6 billion/year from $5 billion/year while keeping net debt to $7-8 billion.

BP is targeting production growth of 30% in 5 years to 1.8 million b/d of oil equivalent (boed) by 2000 and 2 million boed thereafter. With a margin of $4.50/BOE, this would add $900 million/year to potential profits. BP also hopes to gain another $100 million/year by replacing almost 550,000 boed of production with output yielding an extra 50/BOE. A mix of refinery/marketing rationalization and capital spending initiatives and BP Chemicals' plans to improve returns on capital by 4% will account for the remaining profits increase.

BP recently disclosed plans to cut downstream costs through a merger of European refining/marketing operations with Mobil (OGJ, Mar. 4, p. 40).

Copyright 1996 Oil & Gas Journal. All Rights Reserved.