Newsletter

The global petroleum outlook is generally positive.

World oil demand growth for 1997 will be greater than anticipated, says Venezuelan Energy and Mines Minister Erwin Jose Arrieta Valera.

Arrieta predicts 1997 oil use will increase by 2.4 million b/d-double expected growth-to an average 74 million b/d for the year.

An increase of more than $30 billion in upstream revenues boosted world E&D spending by both majors and independents in 1996, reports Arthur Andersen.

In the U.S., oil and gas production generated $56 billion in revenues in 1996, up 30% from 1995. Elsewhere, upstream revenues reached $100.3 billion, up 22% from 1995.

"While the industry appears to be thriving in the current period of moderately strong prices, reserve replacement costs and production costs in the U.S. may be beginning an upward trend," said Arthur Andersen Managing Director Victor Burk.

For the companies surveyed, E&D capital spending was at its highest level since 1988, adjusted for inflation, says Arthur Andersen.

Crude oil prices should rise a little toward yearend, as current market tightness defies earlier predictions of oversupply and the prospect of cold weather again becomes a market driver.

Early this year, London's Centre for Global Energy Studies (CGES) predicted a steady slide toward $15/bbl for OPEC's crude basket by yearend, but now CGES reckons the benchmark will fetch about $18.50/bbl by then.

"Supply has been hit by the 2-month absence of Iraqi exports," said CGES, "and the continued underperformance of the North Sea. This, combined with surging gasoline demand and the loss of U.S. cracking capacity, has reduced stocks to little more than last year's low levels and supported oil prices."

"There are still many uncertainties," said CGES, "any one of which could upset this relatively flat price outlook. Not least of these is what Saddam Hussein and the U.N. decide to do about limited Iraqi oil exports when the oil-for-food deal comes up for renewal in early December."

Canadian drilling activity is booming, with operators expected to set a record for completions this year.

Companies drilled 4,200 oil wells, 2,500 gas wells, and 1,700 dry holes as of mid-August. The Canadian Association of Oilwell Drilling Contractors (Caodc) reports 93% utilization for the month.

Utilization for the first 7 months of 1997 averaged 389 rigs vs. a previous 7-month record of 323 active rigs, set in 1985.

Development drilling accounted for 78.5% of all completions for the period.

Caodc Pres. Duane Mather said, weather permitting, about 15,000 wells will be drilled this year vs. 12,700 in 1996.

Mather said equity markets are strong and drilling funds are in good supply. Smaller companies report problems hiring rigs, and there is a shortage of skilled rig personnel. Drill pipe manufacturers are also hard-pressed to keep up with demand.

On the downside, net earnings for Canadian oil companies declined 27.8% in second quarter 1997 due to weaker crude and products prices.

Federal agency Statistics Canada said operating profits of petroleum producers dropped to $3 billion (Canadian) in the second quarter. The decline follows two record quarters when profits were $4.1 billion/quarter.

The agency said the resumption of exports from Iraq and high production by the rest of OPEC resulted in oil supply exceeding demand.

Amoco is realigning its E&P arm to take a more integrated approach to its upstream business.

New unit Amoco Energy Development Co. will assess opportunities and acquire interests in international production operations and pursue and develop crude oil and natural gas infrastructure projects, including pipelines, LNG facilities, and processing, transmission, and storage projects.

Phillips is joining BP, ARCO, Exxon, Yukon Pacific, and Alaska in a study of a proposed Alaskan North Slope (ANS) gas export project.

The study will examine the viability of producing ANS gas, transporting it across Alaska, converting it to LNG, and marketing it in the Far East. Completion is slated for January 1998, with overall project cost pegged at $15 billion.

"This project signifies Phillips's continued search for ways to develop key gas reserves, especially those in the U.S.," said Jim Bowles, vice-president, North America production.

North Slope fields hold an estimated 30-35 tcf of gas reserves.

Phillips owns interests in the two fields that contain most of this gas.

Privatization measures are gaining speed in the eastern hemisphere.

India's Oil & Natural Gas Commission (ONGC) has appointed DeGolyer & McNaughton to assess reserves in its Neelam oil field.

In appointing the consultants, ONGC reportedly deviated from its standard procedure of an open tender for contracts, which has invited criticism.

ONGC plans to join with a foreign major to stem declining production from the field. Neelam was producing 90,000 b/d of oil when it started full production in May, but production immediately started declining and is now 40,000 b/d.

ONGC has short-listed seven companies for the possible joint venture: Amoco, Occidental, ARCO, Shell, Total, Marathon, and Chevron.

Algeria is opening its downstream operations to private local and foreign concerns.

In addition to lifting the state monopoly on refining, the country's parliament has agreed to encourage more oil exploration partnerships and to develop Hassi Messaoud gas reserves in the southern part of the country.

Further plans include restructuring the petrochemical and fertilizer industries.

Kuwait also is said to be moving toward opening its E&P sector to foreign companies, which are currently limited to providing technical advice.

Studies are under way, with a decision expected in October.

The flurry of activity and controversy in the Caspian Sea area continues.

At presstime, Turkmenistan was set to announce Sept. 1 an international tender for geological survey and development of petroleum in its sector of the Caspian shelf.

Turkmen President Saparmurat Niyazov is welcoming foreign participation. Presentations of an international tender are expected in Vienna, London, Houston, and Ashkhabad in the coming months.

Results of the tender, which Turkmenistan says takes into account the interests of other Caspian littoral states, will be announced Jan. 1, 1998.

Azerbaijan's foreign ministry is urging Turkmenistan to participate in bilateral talks regarding division of Caspian Sea sectors. The two countries are disputing ownership of the Kyapaz oil deposit, which Turkmenistan calls Serdar.

The dispute arose following signing of a July 4 agreement between the Azeri state oil company and Russia's Lukoil and Rosneft. Rosneft has since withdrawn from the project (OGJ, Aug. 11, 1997, Newsletter, and p. 22).

Gazprom Pres. Rem Vyakhirev said his company "under no circumstances" would agree to let Kazakhstan use its pipelines to export gas, reports Interfax. Russia's Gazprom pulled out of the Karachaganak gas/condensate project-which includes BG, Agip, and Texaco-"over approaches on ideological, technical, and economic grounds," said Vyakhirev (OGJ, Aug. 25, 1997, p. 42).

Côte d'Ivoire and Ghana are working together to snatch from Chevron Nigeria a contract to supply gas to Ghana's Takoradi power station being constructed by Volta River Authority, the country's main electricity supplier.

If the plan succeeds, source of the gas will be United Meridian Corp.'s Kudu, Eland, and Ibex fields off Côte d'Ivoire. This could undercut an earlier arrangement in which Chevron Nigeria was to supply gas from its Escravos field (OGJ, Mar. 17, 1997, p. 111).

Colombia's Minister of Mines and Energy, Rodrigo Villamizar, has resigned because of his role in a scandal involving a telephone conversation with another cabinet member.

The conversation, which was intercepted and published, allegedly dealt with the adjudication of radio licenses to benefit President Samper's allies.

Development Minister Orlando Cabrales will succeed Villamizar.

A source at Oxy Colombia regards the choice as positive, given Cabrales's stint as vice-president of finance for Ecopetrol and his hands-on experience in Colombia's petrochemical industry.

Greenpeace activists have boarded an oil rig off the Dutch coast to protest North Sea exploration. The move follows similar actions off Alaska and the U.K. (OGJ, Aug. 25, 1997, Newsletter). The rig, belonging to Dutch oil group NAM was under tow in the Wadden Sea.