OGJ Newsletter

• U.S. Industry Scoreboard 3/31 [71384 bytes]

Connecticut-based analyst John S. Herold says it remains "fundamentally bullish on petroleum markets for the remainder of the year."

For 1997, Herold predicts U.S. crude prices will average $22/bbl in nominal terms and gas prices "will hover" around $2.25/MMBTU.

Going forward, the consultant says, crude prices are expected to dip marginally in 1999. Afterwards, Herold sees crude prices resuming an upward trend, reaching $25/bbl by 2001 and $38/bbl by 2011.

Gas prices will slip a bit in 1998 "before resuming an upward price pattern" to reach $2.55/MMBTU in 2001 and peak at $4.75/MMBTU by 2011.

"We believe 1997 will eventually go down in the record books as another strong year in a secular energy bull market," said Herold Chairman Arthur L. Smith.

Upstream operators are finding more ways to increase production levels, boost profitability, and gain efficiencies.

Fort Worth's Cross Timbers Oil reports it replaced 438% of its 1996 production at an equivalent-barrel cost of $3.51.

"Growth through acquisitions was supplemented by our development program, which alone replaced more than 162% of production" at a cost of $2.86/boe, said CEO Bob R. Simpson.

Houston's Texas Meridian Resources (TMR) recorded a 1996 production replacement rate of 346%, with discoveries contributing to a 65% increase in oil and gas reserves.

TMR benefited from an average oil price of $22.19/bbl in 1996, 24% higher than the year before, and gas prices that averaged $2.60/Mcf, 49% higher than 1995. Fiscal year net income for 1996 increased 231%, while its per-share net income was up 181%.

But Dallas' Enserch Exploration, not faring well from recent price declines, may take a big asset writedown under the full-cost accounting method.

It reports an after-tax writedown of $225-250 million is likely at the end of the current quarter, but a writedown will not affect the pending merger of its parent with Texas Utilities, officials said.

Houston's Altura Energy, the limited partnership formed by Shell and Amoco to operate in the Permian basin, "hopes to prove itself to its parents," so it eventually can expand beyond the basin, says its president.

Initially, Altura's mission is to operate only the Permian basin exploration and production assets of Amoco and Shell.

Altura Pres. James H. Posey told attendees at recent industry meetings in Houston that the new company, with more than 900 employees, will function as a big independent producer-third largest in the U.S.-with 1997 production of 170,000 b/d of oil, 220 MMcfd of gas, and 20,000 b/d of NGL from 12,000 wells, including 6,000 injectors.

Altura sees more consolidation ahead in the Permian basin, where oil production has fallen 50% in about the last 2 decades.

"I am firmly convinced there will be fewer players," Posey predicted.

In Alaska, ARCO, BP, and Exxon have signed a memorandum of understanding (MOU) with Gov. Tony Knowles, signaling their philosophical support that about 35 tcf of North Slope gas reserves may some day move to market.

A second MOU was signed with Yukon Pacific, which for years has supported a plan to move slope gas south via pipeline to tidewater for liquefaction into LNG for subsequent shipment to gas-hungry Asian markets.

Alaska estimates cost of such a project at $15 billion.

At a development cost of about $300 million, interest owners BP and Brussels' PetroFina have sanctioned development of Badami field, about 35 miles east of Prudhoe Bay Unit (OGJ, Feb. 17, 1997, p. 36). The field, found in 1990 by Conoco and Fina, holds about 120 million bbl of reserves.

Once classified as marginal, BP has been working to make Badami economics work. First oil is planned late in 1998, with peak production of 35,000 b/d expected in 1999. BP bought Conoco's interest in 1993 and is operator with a 70% interest; PetroFina owns the remainder.

PetroFina wants to become sole owner of its Fina unit, based in Dallas, and trade on the New York Stock Exchange (OGJ, Mar. 24, 1997, p. 36).

Geophysical activity increased in virtually all areas of the world in 1996, but contractors are not being adequately compensated by operators for the value they add to the process of finding oil and gas.

That was the assessment of analyst William McAtee, first vice-president of Memphis' Morgan Keegan, at last week's annual meeting of the International Association of Geophysical Contractors in Houston.

"You're not getting paid for the value you add," said McAtee, who encouraged IAGC members to take strategic steps to do business differently, including forming separate E&P divisions, developing proprietary seismic data acquisition technologies, adopting "weather clauses" in contracts, consolidating, raising prices, and taking other steps to better capture the segment's share of the oil and gas E&P value chain.

Which is better-MTBE or ethanol-and what about hybrid gasoline/electric-powered vehicles gaining acceptance at some point?

As the oxygenates' debate rages (see related stories, pp. 21 and 22), comes word of a new ethanol study by Michael Evans, a Kellogg School of Management economics professor at Northwestern University, for the Midwest Governors' Conference.

"This study validates the benefits of the federal ethanol program," claimed Iowa Gov. Terry Branstad, chair of the Governors' Ethanol Coalition.

Available from the Lincoln, Neb.-based coalition, the study concludes ethanol is a cost-effective fuel, with numerous state and federal tax and budget benefits, as well as positive implications for job creation.

Speaking recently at the World Conference on Refining Technology & Reformulated Fuels in San Antonio, Nebraska Gov. Ben Nelson, a member and founder of the ethanol coalition, called for an energy summit to begin talks on a national energy policy.

In a reference to U.S. Rep. Bill Archer's (R-Tex.) call to end federal tax credits for ethanol (OGJ, Mar. 24, 1997, editorial), Gov. Nelson said, "The air is filled with claims and counterclaims by rival energy interests. It's hard to tell if they are trying to convince or confuse us. It all adds up to a huge waste of time and resources."

While ethanol protagonists and antagonists expend their energies trading words, Japan's Toyota plans to become the first worldwide car maker to mass-produce a gasoline/electric hybrid-engine passenger car (see related story, p. 28).

The new model-equipped with a 1,500 cc gasoline engine in tandem with an electric motor, generator, and batteries-is intended to run mainly on battery power in cities. It would get about 65 miles/gal and cut emissions by half, says Toyota. Production is expected to start within 1 year.

The U.S. Export-Import Bank, facing rechartering by Congress and opponents who claim it should be abolished because its existence constitutes "corporate welfare," reports business is booming-especially from the energy sector (see editorial this issue; OGJ, Mar. 24, 1997, p. 19).

Ex-Im Bank-authorized financings during its first 1997 fiscal quarter totaled $4.2 billion, representing an increase of $800 million from the same period a year ago. The programs assist U.S. companies to minimize risk and better compete against non-U.S. companies and foreign government-backed financing programs for global projects, officials maintain.

"This is the federal government's way of leveling the playing field," said Julie Belaga, Ex-Im Bank's COO, during a recent meeting at Stone & Webster Engineering in Houston.

Stone & Webster used Ex-Im Bank financing on major projects, including a $1.7 billion turnkey contract to build a petrochemical complex at Tuban, East Java (OGJ, Feb. 10, 1997, p. 33), and sale of $60 million in equipment and services for a refinery modernization under a framework agreement with Russia (OGJ, June 10, 1996, p. 38).

Meanwhile, the competing Export-Import Bank of Japan reports it will join other Japanese banks in lending $250 million to Brazil's Petrobras to finance part of the cost of construction of a new hydrocracker project.

Japan's Ex-Im Bank also offered China loans for the planned $30 billion Three Gorges dam/hydroelectric power-generation project, potentially the world's largest. U.S. Ex-Im Bank elected not to offer letters of credit to Beijing, saying the project did not meet its environmental guidelines.