OGJ NEWSLETTER

Refiners' fears that OPEC's productive capacity will be under pressure this winter have given oil prices an October boost.

Stockbuilding by refiners pushed Brent to $22/bbl from its end September price of $20.75/bbl.

Traders expect prices to go even higher by yearend.

OPEC production now is 23.6 million b/d, and demand could jump another 300,000-400,000 b/d in November-December. Traders feel the added volumes will stretch exporters to their limits.

In these circumstances, all crude sources are being eyed closely, notably deliveries of Soviet crude and products. Also under close scrutiny are prospects for resumption of Iraqi exports. Markets are discounting the possibility of an early reappearance of Iraqi crude in the light of Turkey's demand for higher pipeline transit fees (see Watching Washington, p. 31).

One bright spot is the recovery of North Sea production after extensive summer maintenance turnarounds.

Britain and Norway are currently producing about 4.2 million b/d vs. 3.6 million b/d at the end of summer.

The domestic price of crude oil in the crumbling U.S.S.R. will leap to 300-350 rubles/metric ton from 170 rubles next year, Soviet Oil Minister Lev Churilov told the Financial Times.

He said the increases were part of a strategy to raise prices gradually to free market levels, the London newspaper reported. Churilov said low domestic prices were one of the reasons for the crisis in the Soviet oil industry because they deprived local enterprises of incentive to invest in new wells or repair faulty equipment.

The new prices would apply to crude supplied for use by state companies. Producing organizations also will be empowered to sell 30%, of their output at free market prices, FT reported.

Churilov also said his ministry would be disbanded at yearend and its powers assumed by oil corporations in individual republics. The republics will retain control of those corporations in the short term but consider privatization next year, FT quoted Churilov as saying.

He also estimated Soviet 1991 oil flow would average 10.99 million b/d vs. 11.4 million b/d last year.

Twenty four countries have signed a pact to ban mineral and oil exploration in and off Antarctica for at least 50 years.

The agreement, signed in Madrid, is a protocol to a 1959 treaty banning nuclear and military activity on Antarctica.

Five of Europe's largest shipbuilders have formed a group to develop double hulled tankers in response to U.S. oil spill laws and Japan's and South Korea's dominance of shipbuilding.

Involved are Germany's Bremer Vulkan and Howaldtswerke Deutsche Werft, Italy's Fincantieri, Spain's Astilleros Espanoles, and France's Chantier de l'Atlantique, with backing by Lloyds Register, London, Germanischer Lloyde, Registro Italiao Navale, American Bureau of Shipping, and Det Norske Veritas.

A successful horizontal appraisal in Forth field in U.K. North Sea Block 9/23b has spurred BP to proceed with a horizontal development plan that will halve the number of wells to and slash costs by 100 million to about 380 million.

BP's 9/23b-26x appraisal flowed at a restricted test rate of 7,500 b/d of oil. It was drilled to 5,703 ft true vertical depth, 7,612 ft measured depth. Forth reserves are pegged at 165 million bbl of oil and 180 bcf of gas, with satellites expected to hold another 15-40 million bbl.

BP, expected to seek U.K. government approval next year, holds a 70%, interest in Forth with Repsol 25%, and Ranger Oil 5%.

Multinationals negotiating for Yemen's onshore Block 4 containing three large o discoveries by Soviet contractors, have lost out to a group of expatriate Yemen's operating through Nimr Holding Co., Cayman Islands.

Nimr, a financial holding company with no operating oil experience, signed a production sharing contract calling for them to pay $500 million to compensate the Soviets for development work and data about the discoveries. Total, BP, and Exxon/Hunt previously talked to the Yemeni government about the block, which may have as much as 4 billion bbl of oil in place.

Industry sources say Nimr seeks an experienced partner to undertake further exploration and complete development work.

Iran and Romania have agreed in principle to build a gas pipeline from Iran to Europe via Turkey. Romania could take as much as 424 bcf/year of Iranian gas. Iran also has offered to help modernize Romania's refineries, and Romania wants to buy 30,000 b/d of crude and 10,000 b/d of diesel from Iran.

Norcen Energy is discussing with potential partners a $500 million development of Hebron oil field near Hibernia field in the North Grand Banks off Newfoundland, with a decision likely by yearend.

Although more delineation is needed, the field could start up as early as 1995 from a floating drilling-production system. A Mobil Canada group drilled a 1981 discovery there, but there has been no drilling since then. Norcen acquired a 20% interest in Hebron from Gulf Canada in 1986. Other partners in the original well were Mobil, Petro-Canada, and Chevron Canada.

Ottawa is mulling relaxation of foreign investment rules to encourage petroleum investment, says Energy Minister Jake Epp.

He believes the oil and gas industry will not expand enough to meet the country's needs without additional foreign capital. The federal cabinet is reviewing caps on foreign investment that limit foreign investment to $5 million/project of direct investment and $50 million/project for indirect acquisitions. Canadian Petroleum Association wants equal treatment for the oil industry and prefers investment limits be removed altogether. Epp was approached recently by major foreign investors wanting to discuss investment in the Hibernia development.

The cost of compliance with U.S. environmental rules will shut down a small refinery in Wyoming. Amoco will close its 40,000 b/cd Casper refinery about Dec. 1. Keeping the plant open would require spending $150 million that can't be justified, given the refinery's recent marginal performance (see story, p. 28).

Market forces are not enough incentive to conserve transportation fuels in the U.S., says ARCO Pres. Robert E. Wycoff.

Wycoff told the SPE meeting in Dallas last week, "We need the constraint on consumption" that higher gasoline taxes would bring. "The extra revenues would come in handy, too," to buy and scrap old cars, among other things.

He suggested an extra 10/year the next 5 years on all transportation fuels, saying that by the fifth year, 400 million bbl/year of gasoline would be saved. Wycoff concedes it won't be easy to pass a major gasoline tax.

A federal judge has accepted the record $1.1 billion Exxon Valdez spill settlement, ending U.S. and Alaska criminal and civil suits against Exxon (OGJ, Oct. 7, Newsletter).

Exxon will pay $900 million over 11 years plus $100 million for restoration of Prince William Sound split between the U.S. and Alaska and $25 million of a $125 million fine--with the rest forgiven in light previous cleanup efforts.

Two felony counts will be dropped. The settlement does not affect about $59 billion in private civil suits still pending.

Columbia Gas is mulling sale of all its remaining interest in Columbia LNG Corp., which owns the 1 bcfd capacity Cove Point, Md., LNG terminal. Talks are under way with Shell, which currently owns 9.2% of Columbia LNG stock.

Shell acquired that stock in 1988 with an option to purchase as much as a 50% interest. The two companies are trying to reactivate the terminal, mothballed since 1980, in 1993. Columbia Gas filed Chapter 11 this summer (OGJ, Aug. 5, p. 19).