OGJ Newsletter

U.S. Industry Scoreboard 4/1 [72613 bytes]

As the scramble for petroleum industry investment capital continues apace around the world, analysts are sizing up the best prospects.

Venezuela is the country most favored by international oil companies for new E&P ventures in 1996. This is the result of a survey by Robertson Research International Ltd., Llandudno, U.K. Robertson, formerly Simon Petroleum Technology, says Venezuela's substantial reserves potential, access to markets, and developed infrastructure have attracted considerable interest in two field reactivation bid rounds the last 2 years and most recently in an exploration round.

The rest of Robertson's top 10 list for 1996 are, in order, U.K., Indonesia and Argentina tied, Australia, Peru, Colombia, Algeria, Iraq and Viet Nam tied, China and Mexico tied, and Egypt. Venezuela overtook U.K. as list leader while Argentina, Peru, and Iraq made big strides in the rankings since last year.

Russian oil companies are worth three to four times their current stock market valuation, says Salomon Bros.' Jeremy Hudson. He tells OGJ previous evaluations of Russian oil reserves and production, based on comparison with equivalent western figures, are inadequate. "The difference in valuations will eventually be corrected," said Hudson. "We have detailed cash models of Russian fields and applied standard depletion techniques, then included field rehabilitation work supportable by Russian companies' cash flows.

"The situation will improve for Russian companies because the domestic oil price will increase and political and economic risks and inflation will come under control. There is a great deal of upside."

Hudson contends the struggle for power among Russia's vertically integrated companies is playing out. "There is a clear grouping of aggressive, expansionist Russian companies emerging, and these will assert themselves among Russian companies over the next 6-7 years. We have likened the Russian oil industry situation to a game of Monopoly, where you snap up assets as soon as possible, before trading begins."

Perhaps mindful of that, ARCO last week signed a cooperation agreement with Lukoil to jointly develop oil and gas projects in the former Soviet Union.

Lukoil will own 54% of the venture and ARCO 46%, although ARCO will provide most of the financing for investments projected at $3 billion in 10 years.

ARCO also planned to bid for part of a Lukoil offering of convertible bonds Mar. 29 in Russia. Last year ARCO bought convertible bonds equal to 6.3% of Lukoil voting shares for $250 million.

Shell Salym Development BV and Russia's AONK Evikhon have formed a venture to develop the Salym group of oil fields in western Siberia's Khanty-Mansiisk autonomous okrug. Salym Petroleum Development NV will develop and operate Upper Salym, West Salym, and Vadelyp fields, with total estimated reserves of 700 million bbl. It plans to spend more than $10 billion on the project, expected to reach plateau output of 120,000 b/d of oil. One well in Upper Salym field has produced 700 b/d on test since January 1995. The venture is working on a development plan and aims to produce first oil in 1998.

Shell and Evikhon will have equal shares in the joint venture. The combine expects to begin talks with authorities for a production sharing agreement as soon as a negotiating commission is nominated.

The Salym fields were offered in an international tender 3 years ago in partnership with Evikhon, a joint stock company based in Nefteyugansk and consisting of regional producers and oil ventures (OGJ, Mar. 29, 1993, p. 28).

U.K. gas industry regulator Office of Gas Supply has issued nine firms licenses to supply gas to homes in Southwest England under a pilot scheme for full market liberalization. The U.K. residential market Apr. 29 will receive its first gas supplied by companies other than former monopolist British Gas. U.K. is expected to be fully open to competitive supply in 1998 (OGJ, July 24, 1995, p. 12).

Licenses were issued to Amerada Hess Gas (Domestic), British Fuels (Oils), Eastern Natural Gas (Retails), London Total Energy Co., Northern Electric plc, Norweb Gas, Southern & Phillips Gas, Texaco/Calor Gas, and Western Gas.

Norway looks set to cut the amount of gas sales allocated to the Aasgard project off Central Norway and let Oseberg associated gas make up the difference.

In January operator Statoil sanctioned development of Aasgard after Norway's gas supply committee of operators chose Aasgard gas ahead of Oseberg's to meet European contracts. The committee's recommendation angered Oseberg operator Norsk Hydro, which claims Oseberg oil flow would be jeopardized after 2000 if gas could not be produced (OGJ, Jan. 15, p. 58).

Being considered now is a Norwegian Petroleum Directorate notion to cut Aasgard allocations from 378 bcf/year to 220.5-311.5 bcf/year during 2000-06, rising to 378 bcf/year after 2006. Ministry of Energy and Industry supports a committee minority view of Oseberg supplying 70 bcf/year and probably will decide this week. Statoil is unhappy with the about-face, citing harm to Aasgard profitability.

Papua New Guinea's second hydrocarbon export project has taken a big step toward fruition. Chevron Niugini signed a cooperation agreement with a unit of International Petroleum Corp., Vancouver, B.C., to study feasibility of laying a gas pipeline from Pandora gas field in the Gulf of Papua to North Queensland. IPC disclosed plans for the study and for a $300 million development of the 1.57 tcf reserve Pandora late last year (OGJ, Jan. 1, Newsletter).

Under the accord with Chevron, the study will be broadened to include integrating other gas reserves in Papua New Guinea to support extending the pipeline to Central Queensland. The study is to be completed by June.

A novel agreement between BP and Alaska will flash a green light for the latest marginal oil field development in the state.

For another novelty, development of offshore Northstar field on federal and state leases 6 miles north of Prudhoe Bay will include the first subsea arctic pipeline in Alaska. BP renegotiated state lease terms, first laid out in 1979 when oil prices were expected to climb to stratospheric heights. The state will get a 20% royalty vs. the usual 12.5% but drop a requirement that it receive 88% of net profits.

In addition, BP promised another first in the tradeoff: assembling Northstar modules in Alaska with local hires. Northstar, with 130 million bbl of reserves, could start up early in 1999 and produce 50,000 b/d. Federal leases, with 16.67% royalty, won't be affected by the accord.

Opposition to oil and gas projects is still a fact of life in California.

Santa Barbara County voters have given themselves veto power over oil projects. Ironically, the ballot measure was written to give voters a veto over two extended reach drilling projects that are now moot. Mobil scrapped its Clearview project (OGJ, Feb. 19, p. 26), and Molino Energy Co., seeking to avoid the county's ire, moved its Molino gas field project up the coast. The measure affects only projects on the county's southern coast and not within industrial zones marked by Chevron's and Exxon onshore oil processing plants.

Another irony: A similar measure in the late 1980s was defeated when Chevron and Exxon projects were hot topics. An environmental coalition sponsored the current measure, contending it doesn't trust the probusiness county board of supervisors. A board seat election runoff in November may change the board's complexion.

The continuing resolution budget bill pending in Congress proposes DOE sell 15-17 million bbl of oil from the Strategic Petroleum Reserve by Oct. 1 to raise $292 million. Sen. Bennett Johnston (D-La.) said, "Industry analysts suggest that putting that much oil into the (Gulf Coast) market over such a short period of time could cause prices to fall 30-70/bbl.'' He contends a price drop that big could cut federal and state royalty revenues along the Gulf Coast by $35-85 million, and "the lower the price received, the more oil will have to be sold to meet the budget target. The SPR is an inexpensive insurance for our energy and economic security. Selling a few hundred million dollars worth of oil from the SPR for budget purposes is irrational and inconsistent with our national interest.''

Tenneco may divest its energy unit. The conglomerate, which recently disclosed plans for a tax free spinoff of its shipbuilding unit, plans to sell, spin off, or form a strategic alliance for its energy unit. Tenneco Energy, which includes an 18,700 mile gas pipeline, gas services, power development, and E&P, plans to become a major player in all energy sources. Notable is an opportunity to expand more aggressively into deregulating electricity markets in the U.S. and pipeline and power businesses outside the U.S.

Ethyl continues to fight a growing backlash against its manganese based gasoline additive MMT (OGJ, Mar. 25, Newsletter).

Now GM has jumped on the bandwagon, citing concern over problems with spark plugs and emission control systems allegedly arising from MMT use. Ethyl denies the claims, saying they are the same as those previously rejected by EPA and appellate courts during Ethyl's Clean Air Act waiver bid. Ethyl also demanded documentation on GM's effort to link MMT with a greater incidence of warranty claims in Canada, where MMT has been used for 20 years.

Copyright 1996 Oil & Gas Journal. All Rights Reserved.