OGJ Newsletter

U.S. Industry Scoreboard [71174 bytes]

Expect a tense OPEC meeting in June over the issue of accommodating the return of Iraqi oil to the world market.

No agreement on limited oil sales had been forged between Iraqi and U.N. officials at OGJ presstime last week. The two sides remain divided over who should distribute $130-150 million of humanitarian supplies to Kurds in northern Iraq. The U.S. insists the U.N. do it per the original resolution and is suspicious of Saddam Hussein's motives for wanting the Iraqi army to hand out aid because the Kurds are waging a rebellion against Baghdad (OGJ, Apr. 15, Newsletter).

Abdul Amir Al-Anbari, chief negotiator for the Iraqis, claims his delegation came to New York with the intention of hammering out an agreement in this third negotiating round. Talks were expected to continue Apr. 17 after he accused some countries of trying to scuttle the agreement.

Meanwhile, the top two OPEC officials have visited Saudi Arabia, Kuwait, Qatar, U.A.E., and Iran. They intend to visit Nigeria and Venezuela and possibly Iraq this month. OPEC Sec. Gen. Rilwanu Lukman and current OPEC Pres. Ammar Makhloufi, Algeria's energy minister, are gauging members' feelings about the return of Iraqi oil exports and seeking a consensus to enable a swift agreement on quotas at the June 5 meeting. "They are trying to work out possibilities to cushion Iraq's return to exports," an OPEC official said. "I'm afraid it will be an exciting meeting. What is likely to ignite excitement is the extent to which the heads of delegations have dug into their positions."

And while the rest of the world waits for Iraq and the U.N. to finish their debate, France has moved to secure potentially lucrative deals in Iraq when U.N. sanctions are lifted. French businessmen have opened a trade center in Baghdad to hawk goods not covered by sanctions. Iraqi Oil Minister Amir Mohammed Rasheed hopes to visit France to brief government and oil industry officials and sign contracts when the political situation allows. Talks with French oil companies over Iraqi field development reportedly have reached an advanced stage. Last year Iraq said it was near agreements with Elf, Total, and Russian companies over major projects (OGJ, Mar. 27, 1995, p. 24).

Central to the contentiousness likely at the June OPEC meeting is the issue of quotabreaking by some members-with the latest data showing the chief violators apparently not mending their ways, according to Middle East Economic Survey (MEES).

MEES estimates OPEC oil output averaged 25.85 million b/d in March, down from a recent peak of 26 million b/d in January but up from February's 25.62 million b/d. That works out as a first quarter average of 25.82 million b/d, about 1.3 million b/d more than the ceiling of 24.52 million b/d.

MEES said Venezuela's output rose 70,000 b/d on the month to a new high of 2.97 million b/d. This figure is 611,000 b/d above quota and excludes production of a combined 200,000 b/d of condensate, NGL, and Orimulsion boiler fuel. MEES says Venezuela plans to hike its crude capacity to 3.2 million b/d by yearend.

Venezuela and Nigeria are OPEC's most persistent quota violators, says MEES, and produce flat out to make money to prop weak economies. Algeria's overproduction in March was attributed to a need to make up for low production in February, when bad weather disrupted exports from Skikda terminal.

Crude oil markets have come off the boil after stock shortages drove the price on New York and London exchanges to a 5 year high this month.

The price of May Brent peaked at $23.15/bbl Apr. 11, but by closing in London Apr. 17 Brent for June traded at $19.12/bbl Lehman Bros.' Lindsay Horne said this could mean reversal of underlying market trends or that traders are "just stopping to change horses." The approach of warmer weather has taken the steam out of heating oil markets in New York and London, and refiners that have been short on crude lately are now likely to be covered.

The Iraq/U.N. talks on limited oil sales could also be a factor behind the fall, says Horne, because the longer talks go on the more traders assume things are going well. "However, there is a danger of a kneejerk reaction driving prices high again if agreement between Iraq and the U.N. is once again deferred."

Horne said some refiners lately have been talking of cutting runs. The high price of prompt delivery oil-prompt Brent hit $23.90/bbl Apr. 11-means refining margins have taken a beating. "The oil market high could be in place," said Horne, "but we will have to see the outcome of the Iraqi/U.N. talks. It now looks 50-50 which way the oil price could go next."

Despite an outcry against a recent gasoline price spike spawned mainly by the crude price rally (see story, p. 28), API says 1995 U.S. gasoline prices, adjusted for inflation, were the lowest in the 77 year history of recorded pump prices and the third consecutive year of record low prices.

API reports the inflation adjusted average cost last year was $1.205/gal, or 0.2/gal less than in 1994.

PI noted, "The 1995 price decrease occurred even as the petroleum industry grappled with the added expense of supplying government mandated reformulated gasoline to about one fourth of the nation's drivers.'' Taxes were the largest single cost factor, totaling 42.4/gal vs. 27.7/gal in 1981.

Efforts persist to streamline government, notably those affecting the petroleum industry.

Sen. Rod Grams (R-Minn.) filed a bill to abolish DOE but acknowledges the current Congress probably won't pass it. Similar to one proposed in the House last year, the bill would spin off most of the $16 billion/year department's functions to other agencies. Many research programs would be terminated, and the Strategic Petroleum Reserves would be transferred to the Defense Department and perhaps sold.

Meantime, DOE has chosen CS First Boston Corp., New York, and Petrie Parkman & Co., Denver, as financial advisers for sale of its 78% interest in Elk Hills field. The California field, formerly a Naval Petroleum Reserve, is the 11th biggest oil field in the U.S. and is expected to net the government more than $2 billion. The sale is expected within 2 years.

EPA has set new guidelines for the first time in a decade to assess cancer risk posed by pollutants and chemicals in the environment.

The policy will focus attention on the carcinogenic contaminants people are most likely to be susceptible to and identify types of people most susceptible.

EPA says the guidelines will "identify agents that are not likely to have effects at environmental levels because they cause cancer in animals only at excessively high doses never seen in the environment.''

Chemical Manufacturers Association reports U.S. businesses and state and local governments spend 86 million hr/year compiling more than 4.5 million reports EPA requires.

CMA tallied a 23% increase in EPA paperwork requirements in 1993-94 and notes EPA's goal of cutting its paperwork burden on industry by 25%.

"Everything we see at this point tells us paperwork is heading up, not down,'' said CMA economist Allen Lenz. He said the sheer volume of the reporting indicates EPA is being overwhelmed by paperwork. "The study also raises serious questions about the agency's ability to process and manage all this information in a way that provides real benefit to the public.''

MMS wants potential bidders to express any interest in three Alaska offshore lease sales in the planning stage.

MMS asked industry to identify areas of interest for Cook Inlet Sale 149 this June, Beaufort Sea Sale 144 this September, and Gulf of Alaska/Yakutat Sale 158, in mid-1997. MMS asks if it should prepare to hold the sales or defer them for the 1997-2002 leasing program.

Industry continues to experiment with business combinations to achieve cost cutting and efficiency improvements. Gulf Canada signed a letter of intent to buy for $250 million (Canadian) Pennzoil's western Canada oil and gas assets, including Zama-Virgo operations in Northwest Alberta, and form a venture to develop Zama-Virgo gas. The purchase excludes properties in the venture.

It's been a long, uphill battle for drilling contractors that survived the oil price collapse of the 1980s, but prospects for this industry sector now are bright.

Rowan Cos., Houston, reports a profitable first quarter the first time in 11 years, earning $2.4 million vs. a loss of $21.8 million a year ago. Its offshore rig fleet utilization is virtually 100%, and prospects are for 20 of its 21 rigs to get a day rate hike this year.

Mobil will join Kazakhstan's troubled Tengiz oil megaproject.

Mobil agreed to acquire half of Almaty's 50% stake in Tengizchevroil, the venture Chevron established with Kazakhstan to further develop supergiant Tengiz oil field and export its crude. The project has long been hamstrung by lack of an adequate oil transportation scheme. Chevron will keep its 50% stake.

Almaty asked Mobil, also involved in two major exploration programs in Kazakhstan, to help resolve the transportation dilemma.