OGJ Newsletter

U.S. Industry Scoreboard 8/12 [46209 bytes]

Fears of terrorist attacks are mounting among international oil and gas companies, as diplomatic discord deepens over U.S. efforts to use economic sanctions (see editorial, p. 19, and Watching Government, p. 36).

A group of U.S. oil and gas companies is alarmed by the worsening relations between Washington and Bogota.

In a letter last week to the U.S. State Department, seven firms expressed "growing anxiety at the sharp deterioration in relations between the two countries" and raised concern that further punitive measures by the U.S. against Colombia could trigger a wave of retaliation against U.S. oil and gas installations in Colombia. The signees are Texaco, Chevron, ARCO, Conoco, Oxy, Triton, BP, Bechtel, Halliburton, and Dresser.

Underscoring the seriousness of the situation, the firms point out that U.S. investment in Colombia totals more than $4 billion/year and U.S. exports to Colombia in 1995 were valued at more than $4.6 billion.

Given the downward spiral of sanctions, retaliation, and recrimination between the two governments, Hector Jose Fajardo, president of Texaco Colombia, said, "We don't want to have our efforts in Colombia truncated by a political situation that we don't have anything to do with."

Fajardo said U.S. oil and gas companies are ready targets for ColombiaN guerrillas "every time the relationship between the U.S. and Colombia becomes a little bit tense."

Cause for concern stems from recent attacks on the Trans-Andean pipeline in southern Colombia and on the Cano Limon pipeline in the north.

The former raid occurred in Putumayo basin near the site of massive guerrilla-orchestrated strikes last month protesting destruction of crops at area coca plantations; the latter occurred only 4 km from Cano Limon field, a bold gesture compared with previous attacks much farther away.

Worrisome, too, were murders in late July of three contractor employees, when guerrillas mistook the bus they were riding in as a military vehicle.

Officials warned such cases of mistaken identity are not uncommon in Colombia and could increase with rising anti-U.S. sentiment.

Aggressive U.S. diplomatic tactics also were targeted last week in Paris, where French President Jacques Chirac said France will retaliate immediately if the U.S. slaps any French firms with sanctions for investing in countries accused of sponsoring international terrorism.

The U.S. Senate in late July approved a bill imposing economic penalties on firms investing more than $40 million/year in the energy sectors of Iran and Libya (OGJ, July 29, Newsletter).

European Union commissioners have threatened economic and legal warfare if the U.S. proceeds with proposed sanctions (OGJ, Aug. 5, Newsletter).

Without specifying how France might respond to U.S. sanctions, Chirac contested U.S. extraterritorial authority. He said international trading rules of multinational groups such as the World Trade Organization or OECD might be undermined if U.S. laws were applied to non-U.S. firms.

Meantime in Sudan, Canada's Arakis Energy-although puzzled-says it is taking seriously threats of unspecified "consequences" by Sudan Peoples Liberation Army-United (Splau), if Arakis doesn't stop "colluding with Khartoum to steal oil" from Adar-Yale field in southern Sudan.

Splau claims government troops have attacked rebel positions at Delal Ajak in a bid to control the area to secure passage for barges transporting Adar-Yail crude.

Arakis Chairman John McLeod stressed that the company operates only Heglig and Unity fields in Sudan and has no ties to Adar-Yale, which lies about 250 miles east of Arakis acreage. Arakis Sudan unit State Petroleum Corp. has year-round protection of Sudanese military forces and retains its own security advisers. State has spent more than $100 million developing the concession and is discussing with the government timing of further PSA work commitments.

The company during June 25-July 29 delivered 47,386 bbl of crude to the government at Heglig field gate through a 25,000 b/d early production system completed in April.

Another Canadian company is having a happier experience with its foreign development project.

Gulf Canada, emerging from years of fiscal woes (see related story, p. 21), has a green light to proceed with development of its $600 million Corridor Block gas project in South Sumatra. Gulf and partners Talisman and Pertamina signed an early work agreement with the government, Asian Development Bank, and state-owned gas pipeline operator PGN, allowing construction of a gas plant and related field facilities. Initial sales are to begin in mid-1998. A group of Willbros, JGC, and local firm PT Pertafenikki will begin construction immediately.

Oil and gas companies in Canada are attracting investment capital at a record pace, with first half 1996 capital input exceeding 1995's total.

Sayer Securities, Calgary, says Canadian oil and gas firms in first half 1996 raised $4.15 billion (Canadian) from investors, compared with $1.91 billion in first half 1995 and $4.12 billion for all of 1995. E&P companies through June 1996 sold shares valued at $2.31 billion, up from $770 million a year ago. Canadian royalty trusts garnered another $630 million.

Sayer charted fewer oil and gas transactions in first half 1996 but more deals involving bigger companies. Among them: a $713 million acquisition by Petro-Canada of Amerada Hess Canada, plus financings of $550 million by Norcen and $372 million by Talisman.

High interest in Canadian oil and gas companies is occurring at a time when strong exploratory activity has slowed the decline of Alberta's conventional crude reserves to its lowest rate since 1985.

Provincial officials last month said crude reserves at yearend 1995 totaled 2.4 billion bbl, down only 0.2% from yearend 1994.

Alberta Energy and Utilities Board said exploration, EOR, and revisions added 345 million bbl of conventional oil reserves compared with production of 351 million bbl. AEUB estimated surface mine oilsands reserves at yearend 1995 were 2.4 billion bbl, down 125 million bbl from a year ago, and in situ oilsands reserves were 1.3 billion bbl, up 181 million bbl.

AEUB pegged Alberta's yearend 1995 gas reserves at 52.8 tcf, a decline of 0.1%, with exploratory drilling adding 1 tcf of gas and development drilling 3.3 tcf. AEUB says gas drilling slowed last year because of weak prices resulting from excess supplies and limited export pipeline capacity.

Several groups recently have advanced plans aimed at expanding Canada's gas infrastructure and export capacity.

Dominion Energy, Richmond, Va., will join Sabine Hub Services unit of Texaco and Chandler Energy in developing a 25 bcf storage facility, dubbed Alberta Hub, at one of four locations on Nova's mainline system in Central Alberta (OGJ, July 1, p. 47).

Partners hope the project, to start up this winter, will play a gas trading role in Canada similar to that played by Henry Hub in Louisiana.

U.S. regulators in late July granted preliminary approval for an expansion of Northern Border pipeline, a 969 mile system stretching from Empress, Alta., to the U.S. Midwest.

The FERC decision covers all nonenvironmental issues pertaining to the $800 million project, including a proposal to charge rolled-in rates for 21 shippers with precedent agreements on the line.

Northern Border proposes by 1998 to add 700 MMcfd capacity on an existing line from Monchy, Sask., to Harper, Iowa, and lay a 648 MMcfd pipeline from Harper to Manhattan, Ill., near Chicago. Northern Border in 1995 delivered 615 bcf of gas to U.S. customers, about 20% of all Canadian gas exported to U.S. markets.

FERC has given preliminary approval to the first phase of a plan by Maritimes & Northeast Pipeline (MNEP) to transport gas to the U.S. Northeast from fields off Nova Scotia near Sable Island (OGJ, June 10, p. 32).

Proposed first phase MNEP components consists of 64 miles of 24 in. pipeline and related facilities between Dracut, Mass., and Wells, Me., capable of moving as much as 60 MMcfd of gas from U.S. sources to markets in Maine and New Hampshire beginning in 1997. Sponsors aim eventually to develop a 630 mile pipeline system as early as 1999 traversing Nova Scotia, New Brunswick, Maine, and New Hampshire and terminating in Massachusetts.

Mexican officials are concerned that explosions in late July at the Cactus gas plant in Chiapas state-idling more than a fourth of Mexico's processing capacity-could crimp the country's privatization program (OGJ, Aug. 5, p. 22).

Mexico's Energy Secretariat says Cactus was to provide the fuel for Merida III electric generation facility, a public-private investment showcase. But the accident could slow Merida III development by as much as 2 years, raising doubts about privatization among foreign investors.

Officials worry investors could reconsider buying energy facilities deemed at risk or dependent on Pemex facilities considered operating risks.