OGJ Newsletter

U.S. Industry Scoreboard 6/23 [71393 bytes]

As global energy projects proliferate, company spending has reached record levels in the U.S.

During 1996, capital spending by the 39 largest companies canvassed by Arthur Andersen in its annual U.S. E&P trends survey reached the highest level in 5 years.

U.S. capital spending by these firms jumped 16% in 1996 to $19.4 billion, with E&P expenditures rising by $3 billion to $16.9 billion. Spending to acquire unproved properties, primarily new leases, was up 58% to $1.5 billion.

Exploration spending for the survey group rose 32% to $4.5 billion. The main focus: deepwater Gulf of Mexico.

Biggest increases in exploration spending in 1996 from the prior year were Texaco $205 million, Shell $160 million, Chevron $113 million, BP $81 million, ARCO $65 million, LL&E $54 million, and Amoco $51 million.

E&D spending by the companies in the survey surged 21% in 1996 compared with an average increase of 9.5%/year the previous 4 years.

Alaska has enacted a law establishing a state commercialization team (OGJ, Apr. 21, 1997, Newsletter) charged with negotiating tax/royalty incentives for a natural gas pipeline/LNG export project to allow 35 tcf of North Slope gas reserves to be produced.

The bill allows confidential negotiations between state officials and North Slope producers. In January, the team will report to the legislature, which would then have to pass a bill approving any tax or royalty concessions.

Gulf Canada, looking to the Pacific Rim to triple its reserves in 3 years (OGJ, May 12, 1997, Newsletter), says it wants to create a $1 billion (Canadian) international heavy oil company and take it public in 1998 if markets are right-but a key acquisition appears dead.

Gulf launched a $426 million (Canadian) takeover bid for Calgary's CS Resources, planning to combine Gulf's heavy oil assets of about $600 million with CS Resources' assets to create the company.

But PanCanadian, also of Calgary, made a competing bid of $465 million cash, apparently killing the deal.

PanCanadian's offer is "extremely aggressive," said Gulf CEO J.P. Bryan, "far more than Gulf is willing to pay." Gulf refused to hike its offer.

The heavy oil plan is part of a Gulf strategy to organize its business on a hub-and-spoke basis. An executive hub would be in Denver, focusing on corporate strategy/financial management. Spokes would extend to Calgary and elsewhere as joint ventures, separate companies, or outsourced service areas.

Gulf would remain a Canadian company with headquarters in Calgary; a new Calgary-based operating company would be named Opco.

Calgary's IPL Energy has joined a group planning a $1 billion natural gas pipeline to move Sable Island gas to Canadian and U.S. markets.

IPL unit Consumers Gas, Toronto, joined Calgary's TransCanada PipeLines and Gaz Metropolitain, Montreal, in the project to extend the TransQuebec & Maritimes Pipeline.

The line would move gas to Ontario, Quebec, and the U.S. Northeast.

The project is competing with the proposed Maritimes & Northeast Pipeline, which will ship gas from Sable Island to the U.S. Northeast via the provinces of Nova Scotia and New Brunswick. Hearings are under way.

More power and transportation projects are on tap in Brazil as that country accelerates the opening of its energy sector to foreign investment.

Houston's Enron plans to build, own, and operate a 480-MW power-generation plant in Brazil's Mato Grosso state.

Enron, project low bidder, now must complete a power-purchase agreement with Eletronorte, the operating unit of Brazil's Eletrobras utility, which is currently analyzing bid terms and sufficiency.

Valued at about $500 million, it stands to be the first independent power project in the region to be fired by natural gas.

The project includes the power-generation complex, infrastructure, and a 384-mile pipeline to connect with the planned Bolivia-Brazil pipeline on the Bolivian side. The Mato Grosso project pipeline will supply the plant, as well as meet the needs of industrial users in Mato Grosso state.

The power plant will be located in Cuiaba, capital of Mato Grosso, and be built in phases. Phase one will generate 150 MW, with commercial operations to begin 1 year after the power-purchase agreement is signed.

Next, the complex will be expanded to 300 MW by the end of the first year and converted from diesel fuel to gas. The last phase, to be completed by the end of the second year, will include conversion to combined-cycle operation, and total capacity will be increased to 480 MW.

Argentina's YPF will supply 88.3 MMcfd of gas for the plant. Initial source fields will be in Argentina and, later, Bolivian fields to be developed by Empresa Petrolera Andina, one of three companies resulting from the capitalization of Bolivia's Yacimientos Petroliferos Fiscales Bolivianos (YPFB).

Enron-a participant in the $1.8 billion, 1,916-mile, Bolivia-Brazil pipeline-owns a 25% interest in Bolivia's transportation assets via Transredes, the transportation capitalizing company formed to upgrade Bolivia's pipeline system and build the new pipeline to meet surging Brazilian gas demand (OGJ, May 26, 1997, p. 31).

Officials now say volumes of as much as 1.1 bcfd are expected to be reached in the fifth year of pipeline operation under a 20-year contract between YPFB and Brazil's Petrobras-well ahead of earlier Petrobras projections. Previously, that volume was not expected to be reached for 12-15 years.

Construction is to begin in July, with completion set for early in 1999.

Phase one, Rio Grande, Bolivia-Sao Paulo, Brazil, will be completed by Dec. 15, 1998; phase two, Sao Paulo-Porto Alegre, will be completed in 1999.

But Bolivian officials say planned Bolivian deliveries into the pipeline may not be sufficient based on the new Petrobras projection, and gas from Argentina may be needed to augment Bolivian shipments.

One possible conduit for incremental supply is reversing the Yabog pipeline and laying additional pipeline to ultimately tie into the Bolivia-Brazil pipeline.

Yabog, part of Transredes' system, originates in the Tarija area and moves gas to Argentina. Enron sees Bolivia as a major South American gas hub.

On Bolivia's E&D front, National Secretariat of Energy and YPFB officials were in Houston last week to disclose opening of all uncommitted areas to private investment.

"Bolivia...is positioning itself to play a new role in the 21st century," said Jorge Berindoague, national energy secretary, during meetings coordinated by Houston's InterAmerican Chamber of Commerce.

For the first time, Bolivia is offering acreage in developed areas with production infrastructure and unexplored areas with no infrastructure under the new 1996 hydrocarbon law. About 236,000 sq miles of Bolivia has hydrocarbon-bearing potential, and about 87% is uncommitted.

Nominations will be accepted July 7-17. Invitations to bid will be issued by YPFB on Aug. 1, and bid opening and awards are set for Sept. 12.

YPFB, no longer in competition with private investors for E&P projects, was capitalized last December.

More than two dozen international companies are showing interest in a planned privatization in Poland.

A government official says Poland is likely to invite tenders for refiner Nafta Polska at the beginning of 1998. Initially, as much as 30% might be sold.

A recent sale of interests in Hungary's MOL was heavily oversubscribed, and officials are considering an additional offering of 2.5%.

Shares representing 12.5% of MOL have been sold on international markets. Another 4% on the Hungarian market closed in May.

EPA plans to propose a rule in September to limit emissions of several air toxics from oil production-related processes. The rule would control emissions-particularly benzene, toluene, ethylbenzene, mixed xylenes, and n-hex- ane-from glycol dehydration units, storage tanks, and equipment leaks.

A separate rule would cover glycol dehydration unit emissions.

Major changes have occurred in key energy regulatory slots.

In the U.S., James Hoecker, a FERC commissioner since 1993, has been named chairman effective immediately, replacing Elizabeth Moler (OGJ, June 16, 1997, Newsletter). A Senate confirmation hearing is not required until Hoecker's term as commissioner expires next June.

In Canada, Ralph Goodale has been named natural resources minister in a cabinet shuffle after a June 2 federal election. Previously, he was minister of agriculture.